Money Pours Into Mutual Funds
Investors are lured by prospect of better yields than CDs and by bank marketing efforts
NEW YORK — CORPORATE managers may be fretting about whether the economy gears up sufficiently to produce solid earnings growth during the months ahead. And Wall Street brokerage houses may be warily watching Japan's depressed Nikkei stock index, and any possible negative impact on United States financial markets.
But one sector of the US financial community seems to be actually enjoying - and profiting from - the current economic setting: the nation's mutual fund industry. It has seen money pour into its coffers.
Since December of last year, more than $7 billion per month in new money has flown into equity funds alone, says Heiko Thieme, who manages the American Heritage Fund.
Mutual fund inflows are "substantial and should continue" during the period ahead, says W. Christopher Maxwell, president of Vista Capital Management Group Inc.
Meantime, long-term bond funds are posting impressive sales, as hundreds of banks around the US encourage customers to switch from low-yielding bank certificates of deposit to mutual funds offered or even managed by the banks.
During the first quarter of 1992, net sales of all mutual funds (sales less redemptions) reached $51.2 billion, up from $17.5 billion for the first quarter of 1991. Assets of all mutual funds reached $1.4 trillion in March, up from $1.2 trillion a year earlier.
Moreover, the number of mutual funds continues to proliferate. Many are formed by established families of funds.
But new funds not linked to existing families of funds are also appearing as fast as investment groups can obtain regulatory permission, says John Collins, an official of the Investment Company Institute, a mutual fund trade group in Washington.
There are now more than 3,400 mutual funds, of which 2,600 are long-term bond and stock funds. Just a few years ago, in the mid-1980s, there were only about 1,500 mutual funds, of which about 1,000 were long-term bond and equity funds.
Experts here attribute the rush to mutual funds to three factors:
* Given the current low-growth economic climate, mutual funds can provide steady and high rates of return over time, compared to low yields on current CDs and other alternative investments such as real estate, coins, or other collectibles.
* Banks are expanding their range of investment services, offering new types of mutual funds.
* Many "small investors" fled from making direct investments in the stock market following the market crash of October 1987.
The entry of commercial banks and many savings and loan associations into the mutual fund arena has become increasingly commonplace, says J. Heywood Sloane, manager of CDA/Wiesenberger, a financial services firm in Rockville, Md.
"I'd be hard-pressed to find a major bank ... that doesn't now offer its customers access to a line of mutual funds, either its own funds or someone else's funds," Mr. Sloane says.
The incentive for banks is to tap CD money that clients might be tempted to divert elsewhere, he says.
Customers are also prodding the banks to offer such services. Most mutual funds sold through banks are government, corporate, or tax-free bond funds, Sloane adds.
In the overall industry, net sales of bond and income funds totaled $9.1 billion in March, while net sales of all stock funds reached $7.9 billion, according to the ICI.
Banks tend to blur the corporate ties to their "in-house" mutual funds, since mutual funds, unlike bank CDs, are not insured deposits. The distributor of the successful Vista family of funds, for example, is not affiliated with Chase Manhattan Bank, a point Chase is careful to stress.
But a private unit of Chase manages the Vista funds, and they are promoted through Chase branches.
But some banks are starting to end any pretense of a separation from their family of funds; NationsBank Corporation has just announced that it will unite its 18 mutual funds under its own name, calling the group "Nations Fund."