The bargain hunters in mutual funds are buying Latin American stock funds, betting that the plunge which followed the devaluation of the Mexican peso will soon reverse. And domestic bond funds, which suffered their largest cash outflows ever in 1994, are beginning to attract new investor money.
Mutual fund managers reported Thursday a surprisingly good first month of 1995 in terms of cash flow from investors, with domestic stock fund cash flows also picking up from December.
The comments came as the Investment Company Institute reported final figures for 1994, showing that it was the second-best year ever for domestic stock funds and by far the best year ever for international stock funds.
At the same time, it was the worst year ever for virtually every type of bond fund.
At Fidelity Investments, the nation's largest mutual fund company, Marilyn Morrison, a spokeswoman, reported that its Latin American Fund had positive cash flows during each week of January, despite the plunge brought on by the peso crisis.
Similarly, at T. Rowe Price, Steve Norwitz, a spokesman, reported that its Latin American fund had a small positive cash flow.
Some investors have fled in panic, of course, but those withdrawals have been matched by other investors who have hoped to find opportunity in turmoil.
In so doing, they have probably helped to limit the magnitude of the crisis.
The oft-voiced fear had been that a severe market setback might send mutual fund investors fleeing, thus exacerbating the problem.
In bonds, the run-up of interest rates last year produced losses for almost all bond fund investors, with the biggest losses reserved for the funds that had gambled the heaviest on lower rates.
The losses sent investors fleeing, and for the year funds that invest principally in domestic taxable bonds had net outflows of $44.5 billion, compared with an inflow of $30.6 billion in 1993.
The worst previous year was 1989, when $13.2 billion flowed out. The 1994 figure included an outflow of $4.4 billion in December, a small improvement after seeing more than $5 billion flow out in each of the previous two months.
But in January, there was some sign of reviving interest. "This is the best month we've had in six months," said Steve Gibson, a managing director of Putnam Investments.
He said money was still flowing out, but at a slower pace. And T. Rowe Price said its bond funds had net inflows of cash in January, the first time that had happened since 1993.
Municipal bonds held up surprisingly well in price and cash flows for most of 1994, but the last quarter was a brutal one. Investors took $15.5 billion out of municipal bond funds for the year, with $11.7 billion of that coming in the final quarter.
Never before had more than $3 billion flowed out of such funds in a quarter.
The negative attitude toward bond funds in 1994 was almost matched by a positive attitude toward stock funds, however, despite the fact that many stock funds lost money.
Domestic stock funds took in $75.6 billion in 1994, including $4.4 billion in December. That was below the $90 billion taken in during 1993, but still impressive.
Funds that invest primarily in foreign stocks took in a record $43.5 billion, up from $37.8 billion in 1993.
But the flows slowed substantially later in the year, with the fourth quarter showing inflows of just $4.9 billion, down from a record $18.3 billion in the first three months of 1994.
The cash flow figures include new purchases and redemptions, as well as transfers between different types of funds. But they exclude reinvested dividends.