stockfund net withdrawals

Doug Henwood dhenwood at panix.com
Sun Apr 8 13:47:46 PDT 2001


John Mage wrote:


>http://www.nytimes.com/2001/04/08/business/08LEDE.html
>
>in the middle of the piece ["The Rainy Day Is Here. Now What Do We Do?"
>By Danny Hakim] there's this:
>
>....When the bears roar, investor sentiment suffers. Stock funds
>experienced net withdrawals of $3.1 billion in February, according to
>the Investment Company Institute, the fund industry's principal trade
>group. That made February the first month of net withdrawals from stock
>funds since August 1998, when investors were frightened by the
>near-collapse of Long-Term Capital Management, a multibillion-dollar
>hedge fund. Stock funds suffered another $9.7 billion of net withdrawals
>in March, according to a projection from AMG Data Services....
>
>hadn't seen this before (proves nothing, i'm not following this stuff
>that closely) & at least the trend seems significant to me, but i've
>lost track of whether numbers like this are submicroscopic. doug?

Between 1996 and 2000, U.S. households put about $1 trillion into mutual funds, according to the Fed's flow of funds data. So it'd take about 8 years at March's rate to reverse that. It's not impossible that a long bear market could do that. Over the last 5 years, HH purchases of mutual funds equaled about 3.5% of after-tax income, over 10 times the levels of the 1950s and 1960s. In the 1970s, HHs sold mutual funds on balance (-0.1% of after-tax income in the 1970s).

An odd thing in the FoF stats is that HHs have been relentless sellers of directly owned stocks since 1959 - every year except 1975 and 1976 (the years after the worst bear market since the 1930s). The selling stepped up over the late 1990s - $1.8 trillion of it from 1996 to 2000 - just as mutual fund purchases rose. Rich people are more likely to own shares directly, and less rich people are more likely to own mutual funds. Maybe the selling from the 1960s through the mid-90s is just a data quirk (the household number is a residual: everything that can't be attributed to institutions, like mutual funds and banks, is attributed to households, but no direct household numbers exist). Or maybe rich people have been professionalizing their money instead of managing it themselves. But the acceleration in their selling, just as mutual fund buying was picking up looks like what Wall Street technical analysts call distribution, when smart money sells to dumb. If this is a bear market, and bear markets are time when money returns to its rightful owners ("like the Rockefellers," as small traders say), then maybe the rightful owners can buy cheaply in a few years, just like 1975 and 1976.

Doug



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