Ever since the economy and corporate earnings started slowing late last year, there's been a lot of talk about institutional investors moving money from equity funds, especially those in the risky high-tech arena, into money-market funds.
As long as big names like Intel Corp. and Cisco Systems Inc. continue to warn that sales and earnings shortfalls will last through 2001, Wall Street expects this "cash-on-the-side" approach to gain momentum, which will drive the stock market even lower.
And the approach won't be limited to big institutional investors, but likely will be emulated by individuals investing for college tuition bills or retirement.
"I still believe the market is going to turn more bearish on mutual funds," said Ricky Harrington, a technical market analyst for Wachovia Securities in Charlotte, N.C.
Harrington added that fleeing to money-market funds is typical of a bear market and sometimes picks up just before stocks hit bottom, which is what investors are hoping is happening right now.
"Well, that's a good sign," said Les Burton, an engineer who belongs to an investment club in Lexington, Ky. "When the masses start doing that, that means you've bottomed out."
The defensive strategy of funneling money from stock funds to money-market funds already has been widespread. This past January was a record for the month as investors put $99 billion into money-market funds, the largest chunk of the record $140 billion in net fund inflows, according to Lipper Inc., a Summit, N.J. firm that tracks the industry.
The cash that went into money-market funds in January far surpassed the net inflow of $86.8 billion that went into all funds in January 2000.
Inflows for January 2000, then a record for the month, largely came from high-flying tech funds. That, of course, also changed this year. Technology funds in January took in just $100 million, down from $9.4 billion last year.
At the end of last year after the tech tumble hammered many portfolios, investors "experienced statement shock," said Don Cassidy, senior research director at Lipper. "They did ratchet down the risk level of their portfolios."
About 70 percent of the money that flowed into money-market funds in January came from institutional, rather than retail or individual, investors, according to Lipper.
Analysts expect February results to show even greater flight to money-market funds, given the litany of poor earnings outlooks companies issued during the fourth-quarter earnings season. In a March research note, fund analyst John Lloyd of Merrill Lynch said he expects the flocking to money-market funds to increase to more than 27 percent of investors' long-term assets.
Most of that shift will still be by institutions, he said.
The buy-and-hold, long-term investing mentality that typifies the individual fund shareholder is the reason they don't pull out as quickly when the market sours, say experts.
"Most individual investors don't bail from the market when it does badly. I think they slow down how fast they are going," said Terrance Odean, assistant professor at the University of California-Davis graduate school of management.
But market observers anticipate that individual investors will be more apt to seek safety in money-market funds if the stock market continues to slide.
"If the market doesn't come back very quickly, and the economy stays in a more subdued condition, there will be more pressure on the public to move out of mutual funds," Harrington said.(c) 2001 Associated Press
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