Stock Fund Sales Begin Slowdown Mutual Funds Back Off Of Record Pace

Sales of U.S. equity mutual funds are slowing from the record pace of the first four months of 1996, as fewer investors put money in retirement accounts after the April 15 tax deadline, fund companies said Monday.

“We’re expecting fund sales to be down 10 percent to 15 percent this month from April’s level,” said Tim Pitts, executive vice president at OppenheimerFunds Inc. in New York.

“Fund inflows will be lower in May if they follow well-established historical trends,” said Brian Mattes, Vanguard Group’s spokesman.

Sales almost always get a lift in the first 3 1/2 months of the year from tax steps taken by individual investors and companies before April 15. Individuals and companies must by law fund individual retirement accounts by the time they file their tax returns. No contributions can be made to retirement accounts for the prior year after April 15.

Mutual fund investments in retirement accounts have helped push this year’s stock fund sales to lofty levels, companies said. The record-setting pace has in turn helped fuel this year’s market rally.

Some Wall Street analysts are warning that a reduction in new fund share purchases could result in a sudden market drop.

Byron Wien, chief investment strategist at Morgan Stanley & Co., told clients last week that the Dow Jones Industrial Average may be headed for a 1,000-point decline. A slowdown in stock fund purchases would accelerate the market slump, Wien said.

If Wien’s right, the stock market is facing some rough days ahead. Stock fund sales are almost always lower in May than April, according to the Investment Company Institute, the mutual fund industry’s trade group.

Over the past six years, stock fund sales were 19.4 percent lower in May than April on average, according to a report from ICI. In 1995, net sales of stock funds totaled $10.18 billion in April and then declined 14 percent in May to $8.76 billion.

The ICI said it expects to release its estimate for last month’s mutual fund sales later this week.

Stock fund sales were a record $66.9 billion in the first three months of 1996, or three times more than was invested in the first quarter of last year, the ICI said.

Fund companies, including Vanguard, T. Rowe Price Associates nc., Massachusetts Financial Services Co., OppenheimerFunds and Scudder, Stevens & Clark Inc., reported higher sales in April than March, in some cases better than any previous month.

“In the first four months of the year, money flows into my office like crazy because everybody’s funding their pension plans, profit-sharing plans, IRAs and every other kind of retirement plan they can,” said Montague “Cosmo” Boyd, a retirement plan consultant at RobinsonHumphrey Co. in Marietta, Georgia. “After April 15, all we see are the ongoing funding of 401(k) plans.

“The cumulative flow of assets during the last eight months of the year isn’t as great as the first four months,” Boyd said.

Fidelity Investments, the nation’s No. 1 fund group, has already indicated that stock fund sales are slowing. The company said equity fund sales were an estimated $2.3 billion in April, down from $3.1 billion in March.

Fidelity’s results were hurt by an estimated $500 million in redemptions from the firm’s flagship Magellan Fund, analysts said.

The assets of Magellan Fund fell to $56.02 billion on April 30 from $56.16 billion on March 31, Fidelity said. Assets declined, even though Magellan’s return was a positive 0.65 percent during the month, according to Lipper Analytical Services Inc.

Fidelity declined to discuss the specific sales of the fund or the fund’s history of redemptions.

Magellan’s sales have suffered in recent months because of the fund’s lagging investment performance, said John Bonnanzio, editor of Fidelity Insight, an independent newsletter that tracks Fidelity.

Magellan ranked No. 624 out of 637 “growth” stock funds tracked by Lipper Analytical this year in the period ended May 2. It was up just 1.13 percent, compared with an average gain of 7.43 percent for rival growth stock funds, Lipper Analytical reported.

Fidelity’s recent sales woes may be a sign of what’s ahead for the rest of the industry — and perhaps the stock market, fund companies said.