Fund Investors Turned Prudent in December, Flows Show

Whether they're losing patience or gaining prudence, fund investors are cooling to cratering growth funds and warming to bonds and tamer stock funds.

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In December, the two top-selling funds were the no-load (VBMFX)Vanguard Total Bond Market Index and (VTSMX)Vanguard Total Stock Market Index funds, according to data released by Boston fund consultancy Financial Research (FRC). For much of last year and 1999 most fund investors plowed their money into tech-heavy growth funds, but many of these funds followed tech stocks south. Rather than stop investing in funds, they're putting their money in less risky funds after a year when the S&P 500 lost 9.1% and the tech-laden Nasdaq Composite lost nearly 40%.

Last month investors sunk $6 billion more than they redeemed into stock funds, a big jump from November's $1.7 billion net inflows, but less than the $7.9 billion they invested in December 1999. The two top-selling index funds captured some $1.3 billion in net inflows in December, equal to about 22% of all funds' net inflows for the month. Hardly high-octane, the funds are designed merely to be inexpensive core holdings that rise and fall with the broad stock and bond markets.

The funds are "auto pilot" offerings pegged to broader indices. This suggests investors would rather join the market than get burned trying to beat it, as many did in 2000, a year when investment losses wiped out $316 billion in stock and bond fund mutual assets. The bond fund tracks the Lehman Brothers Aggregate Bond Index and the stock fund tracks the Wilshire 5000 Index, returning 11.4% and losing 10.6%, respectively, last year. The firm's (VFINX)Vanguard 500 Index fund, which tracks the S&P 500, was the fourth-bestselling fund in December.

2000: The Year in Flows This chart shows the top-selling funds in December, according to estimates
Fund Name	Monthly Net Flows, Dec. '00 (in millions of dollars)	Annual Net Flows, 2000 (in millions of dollars)	Total Assets, as of Dec. '00 (in millions of dollars)
(VBMFX)Vanguard Total Bond Market Index	$529	$1,870	$15,750
(VTSMX)Vanguard Total Stock Market Index	506	3,749	23,232
(M$- CJIE)MFS Growth Opportunities Inv	481	5,023	17,315
(VFINX)Vanguard 500	453	1,730	96,478
SEI Instl Large Cap Growth	440	1,974	4,453
(VIIIX)Vanguard Instl Index	432	4,910	10,765
(AGTHX)Growth Fund of America	404	8,885	37,706
(NYVTX)Davis NY Venture	382	4,143	21,791
(ACEGX)Van Kampen Emerging Growth	364	5,467	15,726
(FMCSX)Fidelity Mid Cap Stock	336	3,731	7,011
The top-selling funds for all of 2000, according to estimates
Fund Name	Annual Net Flows, 2000 (in millions of dollars)	Monthly Net Flows, Dec. '00 (in millions of dollars)	Total Assets, as of Dec. '00 (in millions of dollars)
(FDGRX)Fidelity Growth Company	$9,404	$206	$30,397
(AGTHX)Growth Fund of America	8,885	404	37,706
(JAWWX)Janus Worldwide*	7,098	-109	33,144
(FDEGX)Fidelity Aggressive Growth	6,396	-44	15,220
(ACEGX)Van Kampen Emerging Growth	5,467	364	15,726
(PTTHX)PIMCO Total Return	5,414	266	38,161
(M$- CJIE)MFS Inv Growth	5,023	481	17,315
(JAENX)Janus Enterprise	4,971	4,971	6,267
(VIIIX)Vanguard Instl Index	4,910	432	10,765
(POVSX)Putnam International Growth	4,813	133	12,761
Source: FRC. * Closed to new investors.

The bestseller list also included less aggressive broker-sold stock funds like (MIGFX)MFS Investors Massachusetts Investors Growth Stock, American Funds' (AGTHX)Growth Fund of America and the large-cap value (NYVTX)Davis NY Venture fund. Each of these funds beat at least three-quarters of their peers in last year's tough environment.

The high flows to these tame funds are intriguing, but they're expected because investors tend to focus on fund categories that are gaining ground and shun those that are sagging. In 1999, for instance, the average tech fund gained a whopping 136%, according to Morningstar, and investors stuffed $32.8 billion into the growing category -- the previous record inflow was $4.4 billion in 1995.

But last year the average tech fund lost more than 30% and tech funds weren't among the top 10-selling fund flavors in December. In fact, flows also slowed to mid-cap growth funds and big-cap growth funds, which finished last year in the red as well. At the same time, cash flows to tamer large-cap blend funds that hold pricey growth stocks and cheaper value stocks rose 33%, and financial sector funds cracked the top 10 with a $747 million inflow compared to a $1.1 billion outflow in the first 11 months of last year.

Inflows to intermediate-bond funds rose 114% in December, to $439 million, placing 10th in sales for the month. The average fund in this category gained 9.5% last year, compared to a 9.1% loss for the S&P 500. The (PTTAX)PIMCO Total Return fund, an intermediate-term bond fund actively managed by Bill Gross, was the sixth-bestselling fund last year, taking in more than $5.4 billion. The fund gained more than 11% last year.

Growth-fund titan Janus was the top-selling fund shop last year, with its retail stock and bond funds taking in $37 billion, according to FRC. The Denver firm's managers rode big bets on many of the same tech and telecom stocks in 1999 to a more than 80% average gain. After closing several funds due to steep inflows, many of these stocks tumbled and took the funds with them. December was the firm's fourth consecutive month of net outflows.

Investors withdrew $1.1 billion more than they invested in the firm's retail stock and bond funds, which had assets of $164.1 billion in December, according to FRC data. If the firm continues to see outflows, value shop Franklin Templeton could take its place as the country's fifth-biggest fund company. Franklin Templeton's outflows are ebbing, and the firm's retail funds were just $5 billion behind Janus at the end of last year.

Vanguard, the nation's second-largest fund shop with nearly $500 billion in stock and bond fund assets, was the top-selling fund shop for the sixth straight month with eight funds in the top 20 sellers for December. The firm best known for low-cost index investing took in $22.2 billion last year.

In sum, mutual funds had net inflows of $175 billion last year, which is up 18% from 1999. Due to slipping market performance, however, the industry's net assets fell 3% last year to $4.4 trillion, according to FRC.

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