For the multibillion-dollar US mutual fund industry, the summer of 1980 may turn out to be a period of economic bonanza -- despite rising unemployment and a faltering economy.
Industry analysts here are understandably cautious in their readings of what investors may do with excess funds in a period of economic uncertainty. But at the same time, enough indicators are emerging here to point to what could be a particularly promising period during coming months if the industry plays its cards right:
* As interest rates continue to spin downward, money market funds - for the short haul, at least -- continue to offer higher yields than fixed period bank or Treasury certificates. As the same time, traditional stock funds and bond funds look better than ever -- the stocks because they have long been considered undervalued, the bond funds because investors now have the opportunity to lock in on high yields before they drop further.
* Most important, as the industry is well aware, billions of dollars of savings deposits placed in bank savings certificates will be reaching final maturity during the period between June and October. And it is precisely these savings that the industry is eyeing discreetly.
During June $36.1 billion of certificates held in bank and savings and loan accounts will come due.
That amount will rise to over $76 billion in July. In October alone a whopping $100 billion of certificates will reach maturity.
Yet, during this same period, interest rates -- assuming the present trend continues -- should be coming down. And that means money funds, which will have a solid mix of investments locked into fairly high yield financial instruments -- should presumably continue to look much better on a yields basis than rates that banks and S&Ls can offer.
For example, some Washington area S&Ls are now offering six-month savings certificates at an annual yield of 8.003 percent. But by just thumbing through local newspapers, a savvy investor could quickly discover that just one money market mutual fund -- the Government Investors Trust -- is paying around 12 1/2 percent.
The Federal Reserve Board, as part of its overall anti-inflation credit controls announced in mid-March 1980 imposed a reserve requirement on money funds, requiring them to set aside a certain percentage of new assets. At first the reserve was pegged at 15 percent.
That amount has now been lowered to 7 1/2 percent.
While the purpose of the set-aside was to reduce yields on money funds -- and thus discourage savings flows to the funds -- the evidence is more than ample that the investing public correctly perceives money funds are still more than competitive when yields are compared with bank certificates.
While money funds continue to grow, investors appear to be once again moving back into nonmoney funds. During April alone, investment in nonmoney funds exceeded $1 billion, with a net gain (sales over redemptions) of $249 million. That turned out to be the best overall gain since October 1969.
Whether that pattern continues, of course, is still uncertain.
But so far, industry officials are more than optimistic, given falling interest rates.
Industry officials are still considering what to do about challenging the Fed's reserve set-aside. "Obviously, 7 1/2 percent is better than the 15 percent requirement," wryly notes an official of the Investment Company Institute (ICI), main trade group for the mutual fund industry.
But at the same time, he points out, the industry continues to argue that the set-aside is illegal because it is not in keeping with the legal intent of the Credit Control Act of 1969 -- the legal underpinning of the Fed's credit curbs. As the ICI sees it, the purpose of the Credit Control Act was to restrict credit -- not inhibit savings. Still, as both ICI officials and analysts here note, the credit curbs appear to have not yet appreciably slowed the continuing appeal of money funds.
Through late May, 29 new money market funds -- out of a total of 110 funds -- were actively courting investor deposits despite the Fed's reserve set-aside.The "clones" have already snapped up some $1.6 billion in assets, clear indications, industry sources point out, of the continuing draw of money funds.