- The Washington Times - Thursday, November 28, 2002

Wall Street's recent rally might suggest that the market is finally bouncing back, but many mutual fund investors aren't convinced.
Institutional investors, such as mutual fund portfolio managers whose big purchases drive Wall Street, are more bullish. However, their enthusiasm has yet to sway the individuals who have seen their retirement accounts plunge and are still wary of committing to the market.
"I need a bigger rally than we have had so far," said Jim Bruce, a 59-year-old investor in Coto de Caza, Calif.
A year ago, Mr. Bruce switched from investing in the Fidelity Magellan fund to a more conservative route, a PIMCO bond fund. Mr. Bruce said he will go back to Magellan, but not until his faith in the market is restored he's just not sure how long that will take.
Meanwhile, mutual fund managers have been credited for much of Wall Street's rallies. So far for the fourth quarter, the market's major indexes have scored returns that are well into double-digit percentages when compared with the third quarter. They are still sharply lower for the year.
But end-of-year bullishness is to be expected from institutional investors. Stocks often rally in the fourth quarter, partly because it's a strong time of year for most businesses and partly because of optimism about the year ahead. In turn, bigger, professional investors can't afford to miss the chance to buy stocks to dress up their portfolios before the end of the year.
"Portfolio managers can't be seen holding a lot of cash at the end of the year," said Michael Murphy, head trader at Wachovia Securities. "If we have a good fourth quarter and you don't play, you are going to have some tough questions to answer."
That enthusiasm has yet to spread to individual investors, however. Despite the market's advance, money is flowing into funds at a slow pace. Investors put just $3 billion more into stock funds in October than they took out, the first month of positive net inflows since May, when investors poured in $10.2 billion more than they took out, according to fund tracker Lipper Inc.
And, Lipper predicts that October's positive flows were a blip and that more money will flow out of funds rather than in, even as stock prices recover. That's what happened after the 1987 crash, said senior research analyst Don Cassidy. From December 1987 to December 1988, there were seven months in which the market moved up but fund flows were negative.
Mr. Cassidy expects 2003 to be a repeat of 1988 for mutual funds, largely because of skittish individual investors. Individuals who account for two-thirds of fund flows still prefer to put their cash in more bear-resistant havens like money-market and bond funds.
"They are going to take awhile to recover from their pain. Two-and-a-half years is longer than any living investor has experienced of a bear market," Mr. Cassidy said.
Indeed, the bear market that began in March 2000, is the longest since 1938-42.
California investor Mr. Bruce recently lamented that his portfolio has been set back five years. A computer programmer nearing retirement, he said he's not ready to invest in stock funds anytime soon.
"I don't think this rally is enough to say that it is safe to go back in again," he said.

ASSOCIATED PRESS


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