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Flows Set Record, Despite Performance

Net cash flows into stock mutual funds set a record in 2000, when $309.3 billion flowed into the funds, surpassing the previous record of $227.1 billion set in 1997 by over 36 percent and 1999's total of $187.7 billion by nearly 65 percent, according to the Investment Company Institute of Washington, D.C.

The record fund flows occurred despite the fact that the Dow and the S&P 500 fell and the Nasdaq plummeted during the year.

However, the record flows are less surprising when one looks at the trend throughout the year, according to analysts. Flows into stock funds fell dramatically from quarter to quarter last year. (See accompanying graphs) Of the $309 billion in 2000 flows, $134 billion, or over 40 percent, came in the first quarter, according to the ICI. The decline after that is an indication that despite the record, poor performance did have a significant impact on sales, according to Geoffrey Bobroff, president of Bobroff Consulting of East Greenwich, R.I.

"The market spilled over [from 1999] and that's why it was very busy," said Bobroff. "Most of the net flows of any consequence occurred in the first quarter. Since then, the markets have been very sloppy."

Indeed, second quarter flows of $73 billion were high, but nearly half those of the first quarter, according to the ICI. Third quarter flows fell to under $59 billion and continued to drop in the last quarter to $36 billion.

"I think 2000 sort of characterizes in many ways how people were reacting to success in 1999," said Kunal Kapoor, senior fund analyst at Morningstar of Chicago. "That skews the data."

Firms are reporting that flows for January are much higher than they have been in late 2000, according to Kapoor. That may be only partially because of a turn around in market performance, however, according to Kapoor.

"In January, a lot of people use their IRA investment and invest bonuses," he said. "January's usually a strong month, in part because of that. And of course, the market has picked up and unfortunately, investors usually buy things when the market is picking up as opposed to buying bargains."

Janus of Denver took in more cash than any other fund group by a large margin in 2000, according to Financial Research Corporation of Boston. Janus' flows of $37 billion were nearly $15 billion more than those of the number two complex, Vanguard Group of Malvern, Pa., and accounted for more than 20 percent of total net flows for the industry, according to FRC. Vanguard, despite having the second largest net flows in the industry, had less than half of its 1999 total. In 1999, Vanguard led all companies with $46.1 billion and Janus was second with $35.9 billion. The top five fund groups accounted for over 58 percent of net flows in the industry in 2000, according to FRC. That is much less than in 1999 when the top five funds accounted for nearly 80 percent of the industry's flows. That change can largely be accounted for by the substantial decline in Vanguard's flows last year and by the increase in flows overall.