Why the big money pros decided to buy stocks again
New York — Money managers are paid to perform. And when the stock market is the biggest hit show in town, nearly every pension fund, mutual fund, and trust fund portfolio manager wants to be on stage.
Wall Street commentators are less kind: Some simply call it a ''buying panic.'' Such a panic has enveloped Wall Street over the past eight trading sessions as institutional investors, keeping to the sidelines for months, suddenly pulled their wallets out. Through the infusion of billions of dollars, the managers of the nation's pension funds, insurance pools, and trust funds have pushed the Dow Jones industrial average up more than 100 points in eight hectic trading sessions.
Huge blocks of stock - representing 10,000 shares or more of each company - have exchanged hands every five minutes. Only in the last session or two have individual investors begun to enter the fray in a substantial fashion.
In explaining why it appears that institutional investors, usually regarded as the most reserved of all investors, have suddenly lost their cool, Peter H. Vermilye, senior vice-president and chief investment officer at Citibank, says it all starts ''with an intense performance competiton.'' Corporations shift their pension funds around on the basis of performance, he states, and have become increasingly short-term oriented.
Mr. Vermilye admits Citibank, with $20 billion of other people's money under its control, has been active in the past few days.
''We've been a pretty good buyer,'' he says, adding, ''We think we now have (a greater proportion of our portfolio invested in stocks) than most of the competitors that I see.''
Edward Dillmanncq, senior vice-president at Harris Trust & Savings Bank in Chicago, agrees the ''pressure (to perform) is unbelievable.'' Cash, he adds, ''is a nice asset in a down stock market,'' but when the stock market turns around, pressure builds to invest that cash in stocks.
Mr. Dillmann says Harris succumbed to the pressure last week as it also plunged into the markets with a portion of its cash. Dillmann, whose bank manages $11 billion, says the reason institutional investors have suddenly shifted their attention to the stock market is because short-term interest rates have come down so much that ''the comfort level'' obtained by holding cash had disappeared.
''People who have been stock managers with very high cash positions,'' he states, ''decided there was too much risk in that position.'' Thus, when Henry Kaufman, the Salomon Brothers economist, and Albert Wojnilower, the First Boston economist, announced that they thought interest rates were heading lower, Dillmann says, ''it took away the last hope'' of people who were out of the bond and stock markets. Suddenly, he says, owning long-term assets, such as long-term bonds and common stocks, looked a lot more attractive than holding cash.
Lewis J. Kleinrock, a senior vice-president at John Hancock, a Boston-based insurance company, agrees, noting, ''Before the last couple of weeks it paid to procrastinate and put your money into short-term investments.'' Now, he adds, ''a significant flow of funds will go from the short term and into the longer term and that's what we are seeing.''
This was true at Security Pacific Managers, a subsidiary of Security Pacific Bank. Four weeks ago, says Harvey Spiro, executive vice-president, Security Pacific, which oversees about $2.2 billion in pension fund money, began to chop away at its 30-35 percent cash horde. Mr. Spiro, who admits to only ''relatively minor'' buying in the last eight days, says a major factor to him was the stability that the Federal Reserve Board had brought to the money supply.
''What is shaping up,'' he states, ''is a more stable predictable monetary picture.'' With the Fed maintaining a stable presence, Spiro says he sees some ''potential for setting off some powerful forces'' in the economy.
Thus, Spiro began to buy the depressed blue chip stocks. His purchases, he says, have included McDonalds, the hamburger chain; IBM, the computer giant; and General Electric, a major manufacturing concern.
''Quality is not unimportant,'' he adds.
Some institutions claim to have been fully invested prior to the big surge. Marshall Front, a partner at Chicago-based Stein Roe & Farnham, which manages mutual funds, says it was fully invested prior to the surge. The same was true at the Fidelity Group's $600 million Puritan Fund, says Francis Cabour, the portfolio manager.
At Hancock, which had been bullish through the market's long decline, Kleinrock says he is now glad to see other investment advisers agree with them. ''We are maintaining our position,'' observes Kleinrock, who overseers the investment of $1.25 billion. Some of the investment pros believe the market's surge may be a trap. Keith Donaldson, of St. Paul Advisors Inc., says, ''We aren't totally convinced yet that this is a bull market. We'd rather be fully convinced versus getting caught in a short-term trap.''
Right now, however, Donaldson's views are distinctly in the minority. Many investment professionals believe this is more than a sharp leg up in a bear market.
Spiro of Security Pacific says he expects the first buying wave to push the Dow up to the 900 level. After that he expects a brief pullback, followed by still more buying.
''This is more than a rally,'' he states. ''We're looking at a reasonably good bull market.''