Mutual Funds Heating Up

The modern mutual fund investor, these days, has become a model of play-it-by-the-book moderation. No frills or fads satisfy the great majority of this multitude, 96m strong in the US alone. According to the latest tallies by the Investment Company Institute, people nowadays have close to $10 trillion riding on their US fund investments and almost $20 trillion worldwide.

In times of yore like the 1960s and 1990s, fund shares buyers went on flings with go-go aggressive growth funds and Internet funds. Those high-risk, high-cost escapades are all in the past. The evidence to support these assertions comes from the latest data published by the Boston consulting firm of Financial Research on money moving into and out of mutual funds. The five largest selling categories of funds in September were large value, foreign large blend, intermediate term bond, world allocation and world stock. None of these in the group is a gimmick. You can also look at some of the names represented on the list of best-selling individual funds for September: the American Funds’ Capital Income Builder and Capital World Growth & Income; the Dodge& Cox International Stock Fund, and the Franklin Income Fund. The common themes in both lists are revealed in words such as large, value and income. You can just observe the money feeding gradually in 401 (k) and other long-term saving vehicles.

This might have been evidence of a performance-chasing fever 10 or 15 years ago. Today, by most analysts’ account, it represents that the economy’s future is a global story. To suggest that fund investors have mature enough to make another mistake is taking it way too far. Instances of speculative enthusiasm were displayed in 2006.

It is not the case that every dollar should be put in a conservative type of fund. To a contrarian, the lack of the words “aggressive growth” on current fund bestseller lists suggests there is room for a new outburst of high spirits in the market.

The picture of fund investors that comes out from their current actions is a very healthy-looking one. It suggests they have recognized themselves as long-term investors with long-term objectives and have chosen long-term investments well suited to pursuing those goals. It also suggests if stock market runs into a bad patch, fund investors are more likely to serve as stabilizers than contributors to the problem.