2000 Was Big Mutual Fund Year

NEW YORK (AP) â€” It's been a miserable year for the stock market, but mutual fund companies may be able to salvage some good news from 2000. <br><br>Although Wall Street's hemorrhage pulled some

Wednesday, December 27th 2000, 12:00 am

By: News On 6

NEW YORK (AP) â€” It's been a miserable year for the stock market, but mutual fund companies may be able to salvage some good news from 2000.

Although Wall Street's hemorrhage pulled some stock funds down more than 50 percent this year, the overall mutual fund business is still poised to end 2000 with some positive records.

About $306 billion in new investment came into stock funds in 2000, according to preliminary figures from TrimTabs.com Investment Research. That's 63 percent ahead of the nearly $188 billion total investment made in 1999 and more than third higher than the $227 billion in 1997, the previous best year.

The biggest chunk of that money came in the first quarter, as investors poured $93 billion into stock funds to keep up with the rocketing Nasdaq composite index. Activity cooled off considerably late in the year amid the stock market's downturn.

``A lot of these do-it-yourself investors yanked their money out of their own accounts and decided to resort to the professional money management of mutual funds,'' said Ramy Shaalan, senior mutual fund analyst for Wiesenberger, Thomson Financial. ``And, despite all this turmoil in the markets, many mutual fund investors backed by their financial advisors and mutual fund companies, view this as a buying opportunity.''

The number of investment choices also grew in 2000.

There were 4,324 U.S. stock funds at the end of October, compared with 3,847 at the end of 1999, said John Collins of the Investment Company Institute, an industry group.

The biggest asset growth came in aggressive growth stock funds, which contained $121 billion as of October, compared with $34.3 billion in all of 1999, according to the ICI's most recent data. While many of those funds were hammered during the end-of-year market decline, they continue to attract money.

``We are seeing a greater inflows to aggressive growth than growth and income funds, including during November and December,'' said Carl Wittnebert, director of research at TrimTabs.com. ``Investors are afraid of missing out on the next big rally.''

One of the year's biggest fund scandals also came in October, when Heartland Advisors' marked down two high-yield municipal bond funds, slashing their values overnight.

``They weren't huge funds, but the thing is no one expects losses like that in a muni bond. I think it was a bit of a shock,'' said Russel Kinnel, director of fund analysis at Morningstar.

Sheldon Jacobs, publisher of the ``No-Load Fund Investor,'' identifies two mutual fund industry trends in 2000.

``If a fund group has three or four funds that are somewhat similar, they're just merging them into one fund,'' he said pointing to the consolidation of funds by companies or with fund families at the same company.

He also sees a future with fewer no-load funds, which charge investors lower fees, partly because of consolidation and partly because of consumers' willingness to pay for pricier load funds.

``These new investors may not understand how expensive the advice is,'' Jacobs said.

One high-profile example is Scudder Kemper, which as of Dec. 29, will close its no-load funds to most new customers.

The prognosis for 2001 will depend a lot of the market, believes Kinnel, the Morningstar expert.

Although 2000's numbers may appear strong, he doesn't think it was a good year for many investors. Those who put most of their money in Internet-focused funds especially suffered.

He's hopeful, though, that the market's volatility will encourage investors to focus on diversification, rather than chasing fashionable investments.

``In the next couple of weeks, people are going to get their year-end statements and they're going to see how much they've lost and they're going to start to buy value funds,'' he said. ``We've only seen a trickle, but I think it's going to become a torrent.''