What a way to say thank you.
More money was invested in stock mutual funds in January and February than in any previous month since the Investment Company Institute started keeping records in the 1960s.
A net $21 billion flowed into stock funds in February, second only to $28.9 billion in January. Add in bond funds, and the January total was $33.4 billion - another record.
Then, the stock market dropped 171.24 points Friday, a 3.04 percent loss and its worst day in more than four years. Bonds fared even worse.
The nation’s 10 biggest stock mutual funds fell an average of 2.5 percent.
Fidelity Magellan Fund, the nation’s biggest fund with about $56.5 billion in assets, fell 2.3 percent Friday and the fund is down 0.15 percent on a total-return basis this year. It’s the only one of the 10 big funds to post negative returns so far in 1996, according to Lipper Analytical Services, one of two major firms that rate mutual funds.
Among other top-10 funds, Vanguard Index Trust-500 Portfolio, one of the top-selling funds this year, dropped 3.1 percent Friday and the Twentieth Century Ultra Investors Fund fell 3.03 percent in value.
“I think we’ll bounce back next week if the bond market stabilizes,” said Gus Sauter, a principal at Vanguard Group, where he manages about $38 billion in equity investments, including the Index Trust-500 Portfolio. “It’s going to be volatile though.”
Many smaller stock funds gave back almost half the gains reaped so far this year. Bond funds, usually less volatile than stock funds, also fell.
That’s why Marilyn Cohen, president of Envision Capital Inc. in Los Angeles, pushed the accelerator to the floor Friday morning when she heard the economic reports from the East Coast that triggered the market drop.
“I’m sure people all over the country were just like me: anxious,” said Cohen, who manages $65 million in bonds. “I thought it would get ugly, but not this ugly. Even the professionals wig out and panic.”
While no one knows whether the market will resume its retreat next week, the sell-off Friday was dominated by market professionals and speculators like Cohen. Individual investors and the army of mutual fund shareholders could set the tone for the market next week.
Reports from the large fund companies Friday indicated those investors were at least a little bit antsy.
“There was a slight increase in redemption activity toward market close,” said Robyn Tice, a spokeswoman at Fidelity Investments. T. Rowe Price Associates Inc. reported “above-average levels” of investors exchanging shares of stock funds for money market funds, said Rowena Itchon, the Baltimore-based company’s spokeswoman.
If mutual fund investors redeem their shares, the fund managers have to sell stocks or bonds to raise cash to pay them. If there are more sell orders than buy orders Monday morning, that could push the market down again.