Domestic Stock Funds Stumble Out of the Gate in '03

February 4, 2003 ( - With US equity mutual funds still struggling with a tenacious bear market during January, fund managers will continue to have a hard time generating new investor cash, according to fund experts.

According to data from Lipper Inc., diversified US stock funds lost an average 2.3% in January, which translated into 12-month performance declines of 22.9%.  At the same time, investors walked off with an estimated $9.5-billion from US stock funds in January on top of 2002’s steep outflows, according to research firm, Reuters reported.

But investors are continuing to embrace bond funds, pouring an estimated $8.9 billion into these portfolios in January, according to The weak start for stock funds in 2003 likely will make it tougher for funds to gather new assets from nervous investors, particularly at funds that have sustained steep losses and whose long-term records are now further weakened, experts say.

“It does put pressure on a lot of growth funds,” Russel Kinnel, director of fund analysis at research firm Morningstar, told Reuters. “It’s another reason why it’s unlikely that they will get meaningful inflows for awhile.”

January is considered a key month for US mutual fund flows, because investors often plan investment decisions at the beginning of the year. But many investors’ wallets are skinnier this year and uncertainty over a potential Iraq war is discouraging some from making new deposits.

The January declines also have further weakened longer-term performance. Diversified US stock funds now are down 11.4% for each of the past three years, while large-cap growth funds are down 22.4% on average for each of the past three years, according to Lipper.

Almost all types of stock funds fell in January. Among the exceptions were gold funds, up 1.4%, and portfolios that invest primarily in Chinese companies, which rose 4.7%.