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WSJ891027-0127 WSJ891027-0127 = 891027
= 891027
891027-0127 . 891027-0127 . Mutual Funds : @ Investors Yank Billions From Junk Funds @ ---- @ By Michael Siconolfi @ Staff Reporter of The Wall Street Journal Mutual Funds : @ Investors Yank Billions From Junk Funds @ ---- @ By Michael Siconolfi @ Staff Reporter of The Wall Street Journal 10/27/89 10/27/89
10/27/89
WALL STREET JOURNAL ( J ) WALL STREET JOURNAL ( J ) TROW TROW MUTUAL AND MONEY-MARKET FUNDS ( FND ) BOND MARKET NEWS ( BON ) MUTUAL AND MONEY-MARKET FUNDS ( FND ) BOND MARKET NEWS ( BON ) NEW YORK NEW YORK Billions of investors ' dollars are pouring out of the nation 's junk-bond mutual funds , undermining a pillar of support in the already reeling junk market . Last week alone , an eye-popping $ 1.6 billion flowed out of the junk funds , or nearly 5 % of their total assets , according to estimates by Dalbar Financial Services Inc. , a Boston research firm . In the past two months the nation 's 88 junk funds have lost a total of about $ 6 billion -- more than 15 % of assets -- through sales or transfers of junk-fund shares , Dalbar says . It made the estimates based on data collected from more than a dozen big junk funds . Interviews with three major fund groups -- Fidelity Investments , Vanguard Group Inc. and T. Rowe Price Associates Inc. -- confirm the trend . Their junk funds combined have had net outflows totaling nearly $ 500 million , or about 13 % of their junk fund assets , in the past two months . Some fund managers say negative publicity has exacerbated investors ' concern about recent declines in junk-bond prices . `` People have been seeing headline after headline after headline and saying : ` I ca n't take it anymore -- I 'm getting out , ' '' says Kurt Brouwer of Brouwer & Janachowski , a San Francisco investment adviser . The withdrawals could spell trouble for the $ 200 billion junk market . If the heavy outflows continue , fund managers will face increasing pressure to sell off some of their junk to pay departing investors in the weeks ahead . Such selling could erode prices of high-yield junk bonds , already weakened by a rash of corporate credit problems . Mutual fund groups have n't lost control of much of the outgoing money , says Louis Harvey , Dalbar 's president . Mutual fund officials say that investors have transferred most of it into their money market accounts , and to a lesser extent , government-bond funds . So the impact on the $ 950 billion mutual fund industry as a whole probably will be slight . But tremors are likely in the junk-bond market , which has helped to finance the takeover boom of recent years . Mutual funds are the among the largest holders of junk , accounting for more than a quarter of the entire high-yield , high-risk market . The 88 mutual funds investing solely in junk bonds hold assets of about $ 32 billion . Other funds hold a smattering of junk bonds , too . The $ 1.5 billion Fidelity High Income Fund has had a net outflow of about $ 150 million in the past two months . About $ 60 million streamed out last week alone , double the level of the week following last month 's Campeau Corp. credit squeeze . About 98 % of the outflow was transferred to other Fidelity funds , says Neal Litvack , a Fidelity vice president , marketing , with most going into money market funds . `` You get a news item , it hits , you have strong redemptions that day and for two days following -- then go back to normal , '' says Mr. Litvack . The fund , with a cash cushion of more than 10 % , has `` met all the redemptions without having to sell one thing , '' Mr. Litvack says . He adds : `` Our fund has had -LCB- positive -RCB- net sales every month for the last three years -- until this month . '' Vanguard 's $ 1 billion High Yield Bond Portfolio has seen $ 161 million flow out since early September ; $ 14 million of that seeped out Friday Oct. 13 alone . Still , two-thirds of the outflow has been steered into other Vanguard portfolios , says Brian Mattes , a vice president . The fund now holds a cash position of about 15 % . At the $ 932 million T. Rowe Price High Yield Fund , investors yanked out about $ 182 million in the past two months . Those withdrawals , most of which were transferred to other T. Rowe Price funds , followed little change in the fund 's sales picture this year through August . `` The last two months have been the whole ball game , '' says Steven Norwitz , a vice president . Junk-fund holders have barely broken even this year , as fat interest payments barely managed to offset declining prices . Through Oct. 19 , high-yield funds had an average 0.85 % total return -LRB- the price change plus dividends on fund shares -RRB- , according to Lipper Analytical Services Inc . That 's even less than the 4.35 % total return of the Merrill Lynch High-Yield Index . Fidelity 's junk fund has fallen 2.08 % this year through Oct. 19 , Lipper says ; the Vanguard fund rose 1.84 % ; and the T. Rowe Price fund edged up 0.66 % . People who remain in junk funds now could get hit again , some analysts and fund specialists say . Many funds in recent weeks and months have been selling their highest-quality junk issues , such as RJR Nabisco , to raise cash to meet expected redemptions . Funds might be forced to accept lower prices if they expand their selling to the securities of less-creditworthy borrowers . And then , asset values of the funds could plunge more than they have so far . Says Michael Hirsch , chief investment officer of Republic National Bank and manager of the FundTrust Group in New York : `` It 's a time bomb just waiting to go off .