May 15, 2000
There are indications that, despite the high market volatility in April, investors did not panic and that as much as $34.3 billion in net new money flowed into equity funds.
Investor confidence in April is notable, given that the average equity fund declined 4.67 percent, the Nasdaq Composite Index dropped 15.57 percent and the S&P 500 Index dipped 3.01 percent, according to Lipper of Summit, N.J.
Lipper will not have definitive April net asset flow figures until the end of this month. But, preliminary net sales figures from TrimTabs.com of Santa Rosa, Calif. indicate that U.S. stock funds had $34.3 billion in net new sales in April. While Lipper tracks the cash flows of nearly 4,000 funds, TrimTabs.com tracks 532 funds and extrapolates flows for the whole industry from those figures, according to TrimTabs.com.
If TrimTabs.com's figures match what Lipper releases later this month, then April's sales would represent a 90 percent increase from the $18 billion in net equity fund sales Lipper tracked in March. (MFMN 5/8/00)
Investor confidence in April did not differ from that which investors showed through the first three months of this year, when the Nasdaq, Dow Jones and S&P 500 indexes sank 10.79 percent, 4.42 percent and 0.22 percent, respectively. Despite these declines, the average net flow into equity funds for the first three months of the year was $19.4 billion, according to Lipper.
Another indication that investors did not panic in April is a report on the flow of assets in 401(k) plans. The April 401(k) index issued by Hewitt Associates of Lincolnshire, Ill. shows that plan participants transferred 1.25 percent of their total 401(k) balances from equity funds into fixed income or money market funds during the month. That is unchanged from the average monthly transfer that Hewitt has tracked ever since it introduced the index in December 1997. The April index was released last week.
Hewitt's 401(k) Index is based on data the defined contribution consultant collects from 1.5 million plan participants with $68 billion in assets, who are allowed by their plans to trade their funds among various asset classes daily.
Hewitt created the index to learn about the investing habits of 401(k) participants. In addition to looking at average balances each month, Hewitt looks for any significant daily spikes, particularly following large market movements, said Jennifer Frighetto, a Hewitt spokesperson. Hewitt considers any aggregate daily transfer above 0.08 percent of participants' total 401(k) balances to be significant, Frighetto said.
April 401(k) transfers of 1.25 percent of plan participants' total balances show that "instead of reacting to April's stock market volatility, 401(k) participants kept to the sidelines," said Lori Lucas, a defined contribution consultant at Hewitt.
"Perhaps participants are growing accustomed to the market fluctuations. Or, they are simply waiting until the volatility subsides. Either way, we're encouraged to see that most participants are not trying to time the market."
In fact, since Hewitt launched its 401(k) index in 1977, 401(k) participants have never panicked in the face of a sharp market decline, Lucas said.
"So far, the index has shown that participants are not over-reacting to market movement," Lucas said.
In fact, on April 14, the day of the Nasdaq Composite Index's 355-point fall, a near 10 percent decline in the index, 401(k) plan participants moved only 0.08 percent of their total account balances. On the following Monday, April 17, they moved only 0.11 percent from equity funds into fixed income or money market funds, Hewitt found.
Equity fund investors did not take the steep market declines in August 1998 as well as this time, Lipper figures show. In August 1998, the Nasdaq composite index declined 19.93 percent and the S&P 500 was down 14.44 percent, according to Lipper. These declines pushed the average equity fund down 15.31 percent, according to Lipper. As a result, equity funds suffered $934 million in net outflows that month, according to the fund-tracking company.