Uneasy Street: After Six Wild Years, Mutual-Fund Boom Now Is Slowing Down --- Bonds Take Big Hit So Far As Interest Rates Rise; Stocks Also Are at Risk --- Many Naive Small Investors
The mutual-fund boom is slowing down for the first time in six years.</br></br>Investors who poured $523 billion into stock and bond funds in 1991-93, when interest rates were falling, have pulled back now that rates are rising. In the first nine months of this year, net new investments plunged 53%, according to the Investment Company Institute.</br></br>Bond funds have taken the big hit. Stung by losses and lured by rising interest rates on much-safer money-market funds and bank certificates of deposit, investors pulled $26.8 billion out of bond funds in the March-September period.</br></br>Stock funds are still drawing in new money, net of outflows, but the rate of inflow is down more than 6% since March, after the Federal Reserve began jacking up interest rates to keep the lid on inflation. Some analysts warn that a sharper reversal could hit those funds, too, if the stock market takes a major drop.</br></br>The mutual-fund slowdown is bearish for the markets because it is weakening a major prop under stock and bond prices. By one estimate, more money went into stock mutual funds in the 1992-93 period than in the previous 52 years. And for Wall Street, it's a bearish threat to securities firms' already-declining profits.