Boston — Investors in money-market mutual funds, riding high on the crest of a wave that seems to keep going forever, should probably be ready for some calmer waters -- or at least smaller, less exciting waves.
The high short-term interest rates that have kept these funds in double-digit yield figures over the past year will probably be coming down before the end of 1980 and the money funds will start to show yields in the 8-to-8 1/2- percent range, still ahead of conventional savings accounts, but behind current inflation rates.
That is the personal view of John Cogan, president of the Pioneer Group of mutual funds and chairman of the Investment Company Institute, the mutual fund trade organization.
But as long as short-term rates stay at their present levels, the money funds "will continue to be strong," Mr. Cogan said in a recent interview in his Boston office. Exactly when interest rates start to come down will depend on "how steep a recession we have. But . . . tight-money policies are designed to slow down the rate of consumer spending. And it certainly has [affected] the housing market. Once these things have taken effect and there is a perceptible slowdown in inflation, you would anticipate short-term rates to go down."
The recession, he says, "is here." But the fact that it has been slow coming should not be too comforting. "It's like pushing a rock. You push and push and finally it rolls down the hill."
Even if the recession does ease inflation ("assuming we've seen the last of OPEC price increases for a while") and interest rates come down, Mr. Cogan expects the money funds to continue doing fairly well. "There's a built-in momentum. People see the alternatives [in money-market funds], and once they see it, more and more want to get in." Last year alone, the money funds quadrupled their holdings, ending the year with some $46 billion in assets.
Perhaps "alternatives" best sums up Mr. Cogan's view of what has happened to the mutual fund industry over the past decade. While almost all mutual fund investments were in the stock market at the beginning of the 1970s, the stock -- or equity -- funds now account for less than half a mutual fund assets.
"I think the real dynamics of the industry is its ability to provide something it never did a decade ago," Mr. Cogan said. "There's a real selection for investors to meet different alternatives. Money-market funds are new. Municipal bond funds are new.
"And then there's the flexibility. People are able to switch from one fund to another without sales commission charges. So it's become a new type of 'one stop' investing."
Still, even with all the new alternatives, Mr. Cogan emphasizes, the "bread and butter" of the industry has to be the equity fund. "People don't move in and out of these in the same way as we have seen with the newer vehicles." His firm has two equity funds and a "very small bond fund." He expects common stock prices to be stronger in the 1980s and the stock funds to be a major part of this investment picture.
Mr. Cogan was pleased with the results of a recent investigation into the money funds by the Securities and Exchange Commission. While the commission found some "back office" problems, such as letters not being answered quickly or people being left waiting on phones too long, most of these were a result of the funds being unprepared for the totally unexpected growth. In almost all cases, the problems are being corrected gradually, it found.
One reason for this good report card, Mr. Cogan believes, is that the mutual fund business already "is probably one of the most closely regulated industries in the country. . . . Mutual funds are strictly regulated with respect to patterns of conduct and disclosure."
Thus, he is not too worried about any future investigations.
"We're going to have people looking at us all the time. This is a very vibrant industry. And it's not just the money-market funds. We have a very strong underlying support in the equity funds. Even the long-term bond funds have done well this year."