Mutual Fund Investors Monitoring Markets Carefully Several Fund Executives Anticipate Continued Weakness

Some U.S. mutual fund investors reacted to Monday’s 7 percent stock market plunge by pulling cash from equities funds and opting for safety by moving assets to low-risk money market funds, companies said.

Still others, fund companies said, used today’s slump, the biggest one-day fall in percentage terms since the October 1987 market crash, as a chance to buy equities fund shares at reduced levels, betting the U.S. stock market will rebound.

“I don’t want to minimize what happened today because 7 percent is nothing to sneeze at, but there was no indiscriminate selling panic,” said Kenneth Leibler, president of Boston-based Liberty Financial Cos. “It wasn’t like what happened during the market crash of ‘87 when the market fell more than 20 percent.”

The Dow Jones Industrial Average declined 554.26, or 7.18 percent, to 7161.15, prompting the close of equities trading for the first time since President John F. Kennedy was assassinated in 1963.

“I smell a whiff of panic in the air,” said David Dreman, chairman of Dreman Value Management LLC, which oversees $3.8 billion of assets. “I think we’re going to have a ragged market for some time to come.”

Fidelity Investments, the nation’s biggest fund company and an industry bellwether, reported “slight” redemptions from equities funds and inflows to taxable bond and money market funds. Telephone calls from investors were higher than normal both today and over the weekend, said Scott Beyerl, a company spokesman.

San Francisco-based Charles Schwab Corp., the leading U.S. discount brokerage firm, reported that it received 30 percent more calls than normal from investors. The company won’t have an accurate read of transactions activity until today.

Three other leading firms - Vanguard Group, T. Rowe Price Associates Inc. and Scudder, Stevens & Clark Inc. - said fund investors are closely monitoring the market’s movements. Few investors, however, are withdrawing assets from stock funds, and some are even buying some equities fund shares, they said.

“Our telephone volumes were up significantly,” said Ed Canaday, a Scudder spokesman. “The majority of the calls are from people asking for information about the market. There also has been substantial exchange activity, with much of the money going to conservative equity funds and money market funds from international and ‘growth’ equities funds.”

Fund companies said it’s still too early to determine how most fund investors reacted to the market slump. The answer won’t be known for a few more days as investors have a chance to see whether the stock market falls further, fund companies said.

“Investors have to keep today’s decline in perspective,” said Stephen Doyle, chief executive of Montgomery Asset Management in San Francisco. “The (Standard & Poor’s 500 Index) is still up almost 18.5 percent for the year.

“The U.S. market has been at lofty levels for months,” Doyle said. “The waterfall started in Southeast Asia and now we’re seeing some air coming out of the balloon in the U.S. The decline happened quickly. We won’t see a big bounce back tomorrow, but the market will stabilize.”

“If the market was overvalued, it’s certainly a lot cheaper now,” said Edward Boudreau, chief executive of Boston-based John Hancock Funds. “The market will probably fall again tomorrow as investors wait to see what Greenspan has to say on Wednesday. If Greenspan comes out with a calming message, then investors will come back in.”

The steep decline in high-flying stocks like Compaq Computer Corp. and Dell Computer Corp. is a surefire sign that investors are concerned about the outlook for U.S. stocks, Dreman said. Compaq shares were down 8-1/4 today at 60-1/2 and Dell shares were down 12-1/16 at 81-7/8.

“Technology stocks are getting killed and it’s difficult to see how the market will recover with these stocks under as much pressure as they are,” Dreman said.

The U.S. equities market is still expensive, with the average stock trading at 18-to-19 times next year’s earnings forecasts, he said.

“Investors finally realize the market is overpriced and this will probably cause the market to fall for at least a few more days,” Dreman said.

Some of the stocks that moved substantially or traded heavily Monday:

NYSE

Merck, down 8-3/8 at 85.

Smith Barney downgraded the drugmaker’s shares from “outperform” to “neutral,” Dow Jones Newswires reported.

HomeSide, up 2-1/2 at 26-3/4.

National Australia Bank agreed to pay $1.23 billion, or $27.82-1/2 a share, to buy HomeSide, which is one of the largest full service residential mortgage banking companies in the United States.

Tele Danmark, up 2-1/4 at 28-1/8.

Ameritech agreed to pay $3.2 billion for a 34 percent stake in Tele Danmark, Denmark’s telecommunications company. The Chicago-based regional phone company said it will eventually acquire more than 40 percent of Tele Danmark.

NASDAQ

Oxford Health Plans, down 42-7/8 to 25-7/8.

The health maintenance organization warned that it will lose $68.5 million in the third quarter due partly to an overestimation of premiums owed by patients. Oxford, based in Norwalk, Conn., also said its fourth-quarter results will be hurt by higher Medicare and administrative costs.

Eagle Financial, up 4-1/2 at 47-1/2.

Webster Financial agreed to buy Eagle, Connecticut savings and loan holding company, for stock valued at $362 million. Eagle is based in Bristol, Conn.

Micro Warehouse, down 8-3/4 at 11-15/16.

The direct marketer of computer products met analysts forecasts for its third-quarter results, but announced that Linwood A. Lacy Jr. had resigned as chief executive amid some strategic disagreements with the company’s board.

Phoenix International, down 10 at 14.

The maker of software for the financial services industry warned that its third-quarter profit will be below year-earlier levels due to disappointing shipments and revenues.