Fears of inflation slow investment pace

THE BALTIMORE SUN

WASHINGTON -- U.S. equity funds are attracting new investments at the slowest pace in almost a year on concerns the stock market may fall if the Federal Reserve raises interest rates this month.

When investors do buy equity funds, they're putting assets into conservatively managed funds or international funds rather than risky ones such as "aggressive growth" funds, companies said.

Some of America's biggest fund groups, including Vanguard Group, T. Rowe Price Associates Inc. and Janus Capital Corp., said stock fund inflows were about the same in April as in March, when the Investment Company Institute reported $10.51 billion was invested.

"Stock fund inflows are way off the record levels of January and February," said Ralph Greggs, vice president of product development at New England Funds LP in Boston.

The March inflows were the lowest since last July, when an estimated $5.75 billion went into stock funds, and April looks no better, the ICI reported.

Concerns about the Fed's raising interest rates resulted in net outflows for bond funds in March. The ICI said last week that $1.99 billion was pulled from bond funds in March, compared with about $2.17 billion of inflows in February and about $3.4 billion of inflows in January.

Companies said bond funds suffered net outflows in April as well. Money also was pulled from money market funds in April as Americans used cash from these accounts to pay tax bills.

April tends to be one of the best months for net inflows because April 15 is the deadline for making tax-deductible contributions to Individual Retirement Accounts for the previous calendar year, the ICI reported.

Charles Schwab Corp. said stock funds purchased through its OneSource supermarket program totaled about $540 million in April, which was about a third what was invested last April, said Tracey Gordon, a spokeswoman at Schwab in San Francisco. April's inflows were higher than they were in March, when a net $340 million was invested.

Fidelity Investments said its stock funds attracted a net $1 billion in April, led by new investments in its Growth & Income, U.S. Equity Index and Low-Priced Stock funds. It's the first time in recent history that the Fidelity index fund made the company's top-selling list.

OppenheimerFunds Inc. was one of the few firms to report robust net inflows during April.

"We're benefiting from IRA season and investor interest in more conservative funds like 'balanced' funds," said Tim Pitts, the firm's executive vice president. April was "a record month as about $1.1 billion went into our stock and bond funds."

Most companies reported that overhanging concerns about the Fed and the markets are resulting in lower than normal inflows.

Some analysts expect the Fed might move to raise rates for a second time this year in an effort to slow the economy. The Fed, which next meets May 20, raised the target for overnight lending between banks by a quarter of a percentage point to 5.5 percent in March.

"A lot of investors are concerned that if the Fed keeps raising rates, the bull market of the past 6 1/2 years will end," said Charles Biderman, head of Trim Tabs Financial Services Inc., an investment advisory firm in Santa Rosa, Calif. Investors put an estimated $7.5 billion into stock funds in April, Biderman said. That would be about 26 percent below March, he said.

Vanguard Group reported that its stock funds attracted about $1.8 billion in April, or roughly the same as in March. The company's low-cost "index" funds remain the most popular, said Vanguard spokesman Brian Mattes.

In the first quarter, net inflows to stock funds totaled $57.75 billion, down 20.4 percent from $72.54 billion in the same period last year, the ICI reported.

Pub Date: 5/04/97

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