Mutual fund investors shunned stock funds for money market and bond funds in January, but such a conservative shift does not favor banks the way it did a few years ago, experts said.
"I don't see it as a huge benefit for banks," said Louis Harvey, president of Dalbar Inc., a Boston consulting firm. "Banks are still going to have to displace a bunch of people out there who have good reputations and highly respected, conservative products."
Money market funds drew $35.5 billion in net inflows in January, compared with a net outflow of $1.3 billion in December 1997 and inflows of $21 billion in January 1997, according to the Investment Company Institute, a fund industry trade group.
Bond and income funds, meanwhile, saw net inflows of $11.3 billion, up from $5.6 billion in December and $3.6 billion the previous January.
Stock funds took a hit: The $14.6 billion in net inflow for January was down from $15.4 billion in December and $28.9 billion in January 1997.
The results were similar for bank-owned mutual funds.
Throughout the early 1990s, banks' strong bent toward selling conservative mutual funds won them a chunk of the nation's investors whenever the stock market turned turbulent. But banks are not just safe harbors anymore-they now offer a range of proprietary and nonproprietary funds to appeal to investors, no matter how timid or bold.
"Now most bank programs have evolved to the point that they are as sophisticated as wire houses are," said Michael Boulden, vice president at Sanwa Investment Services, in Los Angeles, Sanwa Bank's brokerage affiliate.
But he added, "I'd think banks would benefit because I still think customers in general feel a little better about doing business with a bank than with a brokerage firm."
"With the market at all-time highs, people are looking for a little more conservative investments and moving into bond and money market funds," said Jack Kopnisky, president of Key Investments Inc., the brokerage arm of KeyCorp, Cleveland.
At KeyCorp, net flows into proprietary money market funds were up 7% from December and 25% to 30% from January 1997, while proprietary bond funds have been flat. KeyCorp's equity funds saw no net inflow in January, compared with $20 million in December and $116 million in January 1997.
David Larrabee, vice president for bank sales at American Century Investments, Kansas City, Mo., said that older, more conservative investors are most comfortable with banks.
Those investors may even leave their nonbank broker and head to a bank where they feel their money is safe, he said.
"It boils down to the relationship where they are most comfortable," he said.
Banks generally still have a slightly higher ratio of conservative funds than their nonbank rivals. While 77% of mutual fund investments last year were into equities, the figure was probably in the mid-60% range at banks, said Avi Nachmany, a partner at Strategic Insight, a research firm in New York.
Still, many investors imagine them to be veritable bastions of security, said Michael Vessels, national sales manager for banks at AIM Capital Management, Houston.
"And I think that perception can become reality," he said.
He noted increasing demand for the conservative strategic income funds, which include government, corporate, and international bonds. But the demand for junk bonds has risen slightly also, he said.
Some observers predicted that the shift away from equity funds would be short-lived.
"There was a slightly greater emphasis on bond funds because the stock market was down significantly in January," Mr. Nachmany said. "Probably by February the numbers have completely reversed."
He said that the money market fad will pass soon as well.
"To interpret this as investors having significant second thoughts about their commitment to equities I think is a flawed conclusion," Mr. Nachmany said.
Burton Greenwald, a mutual fund consultant in Philadelphia, said that the spike in money market assets can be attributed to a flood of corporate bonuses.
"In 1996, 1997, people were bullish on the market and allocated that money quickly to stocks," Mr. Greenwald said. "I'm not sure that same ebullience still exists in marketplace after three back-to-back years of strong gains in equities."
Mr. Harvey said he expects bond funds to continue to be strong and for international funds to make a comeback by summer. He said he also expects equities to stabilize in the near term.
