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Surprise! Mutual Fund Investors Are Still Upbeat


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SURPRISE! MUTUAL-FUND INVESTORS ARE STILL UPBEAT

Don't sell the steak, sell the sizzle, says the old marketing maxim. But now that markets have soured, mutual-fund marketers are working to convince investors that they've got steak to sell--even though their performance looks more like hamburger.

Facing that challenge, the mutual-fund companies are revving up expensive new marketing campaigns. Fidelity Investments has even turned to late-night television to pump its products: On July 31, the company rolled out a 30-minute infomercial--believed to be the industry's first.

Fidelity's infomercial, and rivals' newsletters, direct mailings, and other tactics don't so much flog hot new funds as focus on education. Educational marketing could be critical in keeping investors from bailing out if the market tanks--as 40% of those surveyed in a new BUSINESS WEEK/Harris Poll think is "very" or "somewhat" likely in the next 12 months.

Some of the mutual funds' key markets, moreover, are getting saturated. Analyst Guy Moszkowski of Sanford C. Bernstein & Co. figures that nearly 90% of households with incomes of $50,000 and up already have invested in at least one mutual fund. "It's harder to find new customers, so you have to develop the relationship with those you already have," says Neal Litvack, an executive vice-president at Fidelity Investments Co.

QUICK HITS. That's why most fund companies have improved shareholder newsletters by adding substantive articles dealing with issues such as interest-rate risk and asset allocation. Fidelity's infomercial, which runs on such cable networks as Lifetime, the Family Channel, and the Discovery Channel, emphasizes the need to save, set investment goals, and diversify assets.

And many fundmeisters are using new tactics to get quick-hit messages across in a crunch. When the stock and bond markets went into a tailspin this spring, for instance, Dreyfus Corp. set up a special toll-free line with a market commentary by chief economist Richard B. Hoey. Others dashed off market-related letters and stuffed them into account statements.

Are the new tactics working? New cash flow to stock mutual funds slowed to $7.7 billion in June, from $18.4 billion in January. But it might have been much worse: Since March, investors have withdrawn $16 billion more from bond mutual funds than they put in. For updates, tune in to late-night TV.SURPRISE! MUTUAL-FUND INVESTORS ARE STILL UPBEAT

Mutual-fund investors seem to be shrugging off the market's ominous atmospherics. Fully 94% say they're somewhat or very confident that their investments are safe, and only 24% say they plan to shrink their holdings. They're a pretty savvy lot, too. For the most part, they know that investing comes with risks, and they don't expect the government or anyone else to make up losses. But investors may feel less sanguine after a peek at their next quarterly statements: 65% think they've made money in mutual funds so far this year--and the way things have been going, most of them are probably wrong.

RANKING THE RISK

How safe would you say each of the following investments is--that is, how much chance is there that each of these investments could lose a lot of money? Would you say very safe, somewhat safe, not very safe, or not at all safe?

Very Somewhat Not very Not at Not

safe safe safe all safe sure

Corporate stocks 7% 58% 24% 4% 7%

Corporate bonds 9% 61% 15% 3% 12%

Stock mutual funds 18% 64% 8% 1% 9%

Bond mutual funds 20% 54% 9% 2% 15%

Money-market funds 33% 49% 9% 2% 7%

Bank CDs 61% 29% 5% 1% 4%

U.S. Treasuries 66% 22% 5% 1% 6%

EXPERIENCE

For how many years have you been an investor in mutual funds?

0-1 year 7% 2-5 years 29% 6-10 years 30% 11+ years 34%

FUND PREFERENCE

Yes No Not sure

Of the Stock funds 55% 38% 7%

following Bond funds 35% 58% 7%

types of Money-market funds 46% 49% 5%

mutual funds, Mixed stock-and-bond funds 47% 44% 9%

do you own: Other 11% 82% 7%

FAITH IN MUTUALS

How confident are you that your Very confident 35%

investments in mutual funds are Somewhat confident 59%

reasonably safe--very confident, Not very confident 5%

somewhat confident, not very Not at all confident 1%

confident, or not at all confident? Not sure 0%

FUTURE PLANS

Over the next six months, do you Invest a lot more 3%

think you will probably invest a lot Invest somewhat more 29%

more in mutual funds, invest somewhat Reduce somewhat 18%

more in mutual funds, reduce your Reduce a lot 6%

investment in mutual funds somewhat, Stay the same 40%

or reduce your investments a lot? Not sure 4%

PAST ACTIONS

Have you switched from one fund to another or taken money out of a fund at any time over the last six months because you were concerned about the safety of your money?

Yes 10% No 90% Not sure 0%

CHANCES OF A CRASH

Over the next 12 months, how Very likely 6%

would you rate the chance of Somewhat likely 34%

another big crash in the stock Not very likely 48%

market--very likely, somewhat likely, Not likely at all 9%

not very likely, or not likely at all? Not sure 3%

SKETCHY KNOWLEDGE

How good an idea do you think A good idea 25%

you have of what kind of securities A fair idea 49%

your mutual fund can invest in? No idea at all 25%

Not sure 1%

FIXING THE BLAME

If a mutual The mutual-fund portfolio manager 16%

fund you've The salesperson who sold you the fund 4%

invested in You, for selecting the fund 17%

loses money, No one--that's one of the risks of investing 60%

who is Not sure 2%

to blame? Other 1%

TAKING RESPONSIBILITY

If your mutual fund loses money, do you think:

The fund management company should make up losses 10%

The person who sold you the fund should make up losses 2%

The U.S. government should make up losses 6%

No one should make up losses 80%

Not sure 2%

REPORT CARD

Looking at all your mutual- Made money 65%

fund holdings, have they made Lost money 20%

or lost money for you so far About even 10%

in 1994? Don't know 5%

NEWS ABOUT DERIVATIVES

Have you seen, heard, or read Seen, heard, or

anything about mutual funds that read about 20%

have lost money because of their Not seen, heard,

investments in sophisticated instru- or read about 78%

ments called derivatives, or not? Not sure 2%

LITTLE IMPACT

(For respondents aware of derivatives) As far Yes 22%

as you know, do any of the funds you own invest No 69%

in futures, options, or other so-called derivatives? Not sure 9%

THE GOVERNMENT FACTOR

(For respondents aware of derivatives) Do Yes 22%

you think that the government should prohibit No 65%

mutual funds from investing in derivatives? Not sure 13%

Edited by Mark N. Vamos and Michele Galen

Survey of 529 mutual-fund investors conducted July 29-Aug. 1, 1994 for BUSINESS WEEK by Louis Harris & Associates Inc. Results should be accurate to within 4.3 percentage points.

RAY VELLA/BW

Harris Poll


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