Mutual fund investors, long characterized as ignoring short-term market swings in favor of long-term results, may be more likely to take the money and run than many fund companies ever thought.
By several accounts, July is shaping up to be one of the worst months in years for mutual funds that invest in stocks, both in terms of performance and cash flows.
Fidelity Investments, the country's largest fund company, said Thursday that it expected net outflows of $500-million from its domestic equity funds this month. They would be Fidelity's first such monthly outflows since at least the beginning of 1995.
Investors at Charles Schwab & Co., the discount brokerage that operates the largest mutual fund supermarket, pulled out nearly $700-million from stock funds through Monday this month.
Those results do not necessarily mean that money has drained out of stock funds across the entire industry in July; in fact, several other companies, including Vanguard Group, the second-largest fund company, say they expect net inflows for the month.
But the experience of the past two weeks goes far to undermine one of the mutual fund industry's long-held tenets _ that fund investors use dips in the market as buying opportunities.
That belief, which grew out of the experience of the crash of 1987, might have worsened the volatility in many sectors of the stock market this month _ particularly among small-company stocks, which have fallen much lower and faster than blue chips.
Those on Wall Street who closely watch mutual fund inflows for insights to the direction of the market got more bad news Thursday, when the Investment Company Institute, a trade group, reported that investors put $14.5-billion in equity funds in June _ $1-billion less than the institute estimated earlier this month.
The June inflows were down 42 percent from May's level, and all the decline came from domestic stock funds. International stock funds recorded net inflows of $3.9-billion in June, about even with the previous month. Bond funds, meanwhile, had net outflows of $206-million, the first such withdrawals since June 1995.
Even more quickly than investors have poured money into stock funds this year, fund managers have put it to work, leaving funds with smaller pools of cash reserves to cash out departing investors.
All year, mutual fund companies have professed unconcern at declining cash levels, saying that past experience demonstrated that investors were unlikely to redeem their fund shares, even if the market sold off quickly.
Meanwhile, fund companies have made it easier for investors to move assets quickly among stock, bond and money market funds, which invest in short-term cash instruments, via electronic switching services and toll-free numbers.
Now, even investors in retirement plans, who are all but barred from withdrawals, have found it much easier to switch money between different asset classes.
At T. Rowe Price in Baltimore, investors put more cash into money market funds this month than into stock funds. "That hasn't happened for about a year and a half," said Steven E. Norwitz, a vice president.