Mutual funds pared their holdings of municipal bonds slightly in the first half of 1992, but tax-exempts still represent almost 18% of their portfolios, according to a new study by the Securities Industry Association.
Municipal holdings fell to 17.7% at the end of the second quarter, down from 18.9% at the end of 1990. But that figure is still higher than the 14.2% held in 1985 and the zero share in 1970, the SIA report says.
Individual investors increased their holdings of federal government and municipal bonds from 11% in 1980 to 16% by the end of the second quarter of 1992, the association said.
Mutual funds enjoyed the largest increase in their financial portfolios of all institutional investor segments from 1980 through the second half of 1992, with assets growing to $913 billion from $58 billion.
By the end of the second quarter, government securities and municipal bonds totaled 40% of mutual funds' liquid financial assets, with tax-exempts totaling about $161.1 billion.
Meanwhile, public and private pension funds continue to hold only nominal amounts of municipal bonds in their portfolios because the funds do not need the tax-exempt income. By mid-1992, private pension funds had only about 0.3% of their assets, or $4.1 billion, invested in municipal bonds, while public funds had just 0.1%, or $900 million, invested.
Individuals have increasingly diversified their holdings and turned to professional institutional investment services to manage their assets. By mid-year, institutions held more than half the outstanding stock in the United States for the first time ever, relying on heavy in-flow of cash from individuals into equity mutual funds during 1991 and 1992.
Investors' direct holdings of stock and mutual funds, including money market funds, equaled 45% of their liquid financial assets during the first half of 1992, compared with under 40% in 1980, the SIA said. At the same time, individuals decreased their holdings of certificates of deposit to 35% of their financial portfolios, down from 48% in 1980.