Sales are surging as bulls charge
Boston — By mutual fund industry standards, the Janus Fund is fairly small. But by any measure - whether in sales or incoming telephone lines - its growth in the past 12 months has been rapid, to say the least.
In August 1982, when the US stock market began its historic bull run, the Denver-based fund had some 5,000 shareholders and was investing about $40 million of their money. A year later, reports Gordon Yale, Janus's secretary-treasurer, there were more than 32,000 shareholders with some $275 million under management - a more than sixfold increase in both shareholders and assets.
''We've had to triple the number of people in our phone room'' to handle the added inquiries and orders, Mr. Yale reports. In addition, a new phone system, including three new toll-free lines, had to be installed to handle the extra calls.
Even for this industry in this unusual year, the Janus experience may be extraordinary, but its efforts to deal with growth are not. For in 1983, millions of Americans are fondly embracing mutual funds. No longer appealing to just a small, fairly conservative share of the population, mutual funds have become the saver's route to the world of investments.
Only a few years ago, these people went through the mental adjustments needed to switch money from passbook savings accounts to money market funds earning 15 to 17 percent. Now, many of them have begun to heed the fund companies' urgings to switch part of this hoard to equity, or stock-based, mutual funds.
While growth figures for all mutual funds may not be as large as at Janus, they are still impressive:
In August 1982, reports the Investment Company Institute, the industry trade group, assets of all funds (except money funds and short-term municipal bond funds) stood at $62.2 billion. A year later, these assets reached $104.5 billion. While part of this is the result of the increased value of stocks in the funds' portfolios, it still represents one of the largest sales-generated gains in mutual fund history.
''A year or so ago, (the industry) usually had sales of $1 billion or so each month,'' said ICI spokeswoman Lisa Swaiman. ''Now, sales of $3 or $4 billion a month are commonplace.''
Behind these encouraging numbers is a changing profile of the mutual fund shareholder.
''The profile of the mutual fund investor is a lot different,'' observes Burton Berry, publisher of NoLoad Fund*X, a mutual fund newsletter. ''They're better educated, more sophisticated.'' This is one reason, he says, for the increased interest in no-load funds, where purchases can be made without a sales charge. ''The people coming into funds now are able to make decisions without an agent.''
''There's a much broader range of interest in mutual fund investing than there was a few years ago,'' asserts Marshall B. Front, a partner at Stein Roe & Farnham funds and president of the No-Load Mutual Fund Association. ''Many people who had confined their savings to banks . . . have moved capital to the mutual funds.''
''I don't think the average age has changed that much yet,'' Mr. Front contends. ''But in the future, you'll see the profile move to a younger range.''
These younger shareholders are a more daring lot, too. They are much more willing to shorten investment time frames and take greater risks to win big gains.
''I see more people going into aggressive growth funds,'' notes Richard Curry , director of financial services at Prescott, Ball & Turben, a Cleveland brokerage. In fact, the ICI's Ms. Swaiman reports, 1983 sales of aggressive growth funds reached $1.1 billion through August, compared with $600 million in the same eight months last year.
Perhaps surprisingly, observers note, much of the money going into the speculative funds is in individual retirement accounts (IRAs), the kind of vehicle where one would expect security to be paramount. Many of these IRAs, however, are opened by people in their 20s and 30s who feel they have time to correct any mistakes that might result from greater risks.
''An awful lot of it (mutual fund investing) is IRAs, which are usually younger customers,'' confirms Frank Parrish, vice-president at the Fidelity Funds. IRAs' long-term investment goals and the ability to switch mutual fund money from one fund to another until retirement - all without incurring tax liability - fit in nicely with the funds' promotion efforts.
The ICI numbers also show an interest in saving on taxes. In spite of - or perhaps because of - recent efforts to cut individual income taxes, many people are looking for tax shelters in their mutual funds. This helps explain why $37.6 billion of shares in long- and short-term municipal bond funds were sold in the first eight months of this year, compared with $8.2 billion of such funds in the same period last year.
But for many of those looking at equity funds for the first time, a more cautious approach seems to be preferred, notes Richard Vesely, marketing vice-president at the Delaware Management Company, a Philadelphia fund group. ''Some of the people who have exchanged into equity funds or have added an equity fund to their portfolio are doing this modestly,'' he says. ''They are testing the water by keeping some of their money in money funds and moving modest amounts into equity funds.''
The industry is hoping that its future performance will not disappoint those who have joined stock-based funds based on the gains of recent months. In the 12 -month period ending Aug. 31, according to figures kept by Wiesenberger Investment Companies Services, gains of 40, 60, even 80 percent were not uncommon.
Some funds managed to more than double the value of their portfolios. High on Wiesenberger's list are Fidelity Select Portfolios-Technology, up 128.7 percent; First Investors Discovery, up 117.2 percent; and Twentieth Century Ultra Fund, with a 108.1 percent increase.
While these gains testify to the skill of the people managing their investments, they also testify to the strength of the market. But with the market taking on an indecisive look in recent weeks, the funds are looking for ways to hold onto their gains - to avoid the kinds of problems they had in previous years.
''In the late '60s, everybody was buying mutual funds,'' Mr. Curry at Prescott recalls. But when stock prices fell twice in a six-year period, the funds followed. ''In 1968-69 and in 1973-74, the death knell was sounded for mutual funds.''
Even though they have come back, partly because of growing interest in the stock market and partly because of more conservative investment policies by fund managers, Mr. Curry still urges caution. ''I don't recommend any high-growth funds,'' he says. ''I can't determine now if there's going to be a shakeout. But if there is, these will be the first ones to go.'' A hint of that pattern can be seen in recent ICI statistics. In August 1982, aggressive growth funds held $184 million in assets. By this July, that figure had ballooned to $849 million. But just one month later, it dropped to $633 million.
Fortunately, there is a way mutual fund investors can escape a sliding stock market which was not widely available in earlier periods. With the advent of money market funds, people have a place to park their money and wait out the bears. If stock prices fall and interest rates rise, as is the usual pattern, money can be switched from a stock fund to a money fund. At most companies, this can be done in the time it takes to make a toll-free or collect telephone call.
It does mean, however, that the mutual fund shareholder has to play the ''market timing'' game along with the experts. Is this market drop for real or just a short-term sag? Is the latest increase in interest rates really part of a trend? Even if stock prices are falling, how long will it take for your fund to follow?
One solution to this quandary is to pick an interest-rate level - some have suggested 11 or 12 percent - as a trigger point. If short-term interest rates go above that level, switch to money funds. If they stay under 11 percent, stay with equity funds. You may miss some tops and bottoms that might otherwise be profitable, but in the long run, the results should average out in your favor.
But as long as equity funds continue to perform well, Mr. Yale at Janus believes, they will continue to attract new shareholders and more money. ''It's an amazing process,'' he says. ''The media have really expanded their coverage of funds. We can feel the power of exposure.''