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Fund Firms Brace for Market Slowdown

Mutual fund companies have been bracing for a slowdown in the U.S. and global markets.

"They are preparing... by diversifying into other countries, adding more advising guidance to their product-lines," and by focusing on retaining the dollars they have, said Ryan A. Tagal, senior analyst with Cerulli Associates of Boston.

Mutual fund companies will also have to focus on providing good service for a reasonable price, said Tagal.

There will be slower growth worldwide and an easing of interest rates in 2001 but not a recession, according to a survey of Merrill Lynch analysts released last week. U.S. GDP growth will decelerate from 5.1 percent in 2000 to 3.3 percent in 2001, the survey said. Also, after growing at a double-digit pace for eight consecutive years, growth in capital spending on equipment and software is expected to slow to nine percent in 2001. The report also predicted that the Fed will ease twice during the first half of 2001, bringing the Federal funds rate to six percent by mid-year.

Mutual fund companies might also adjust their prices to cope with the downturn, Tagal said.

"If people conceive mutual funds to be too expensive, they could move into index funds or individual securities or just get out of funds altogether," he said. "So, the industry is preparing itself for all these changes."

The fund industry is also realizing that it has to have more diverse products, including non-mutual fund products, Tagal said. It will try to compete with private banks for high net worth assets by offering more diverse products, he said.