Fund Managers Deal with Market Fears

It’s been a tough year for the stock market—and an absolutely brutal one for mutual fund investors. The wild swings in August were particularly unnerving: Investors pulled $30 billion from U.S. stock mutual funds in the week ended Aug. 10, amid the biggest flight since a month after the failure of Lehman Brothers in September 2008. For the seven months through July, net withdrawals totaled $17.8 billion, following outflows of $280 billion from 2008 through last year, according to the Investment Company Institute. All of which confirms a long-term trend: Investors are fed up with poor returns and volatility. “You can’t keep having bombs, so to speak, go off,” says Andrew D. Goldberg, a market strategist at JPMorgan Funds. “If the second you walk outside another one goes off, you’re going to stay inside for longer.”

Some investors may be gone for good, even if the market rallies. The baby boomers represent the largest group of investors in mutual funds, according to Geoffrey H. Bobroff, an investment-management consultant in East Greenwich, R.I. As they go into retirement, they might not return to equities after enduring two bear markets over the past decade. “They are already thinking now about their retirement years,” he says. “They may be in fixed-income of different flavors, but equities may no longer be on their horizon.” The younger generation is also disenchanted. A June survey by asset manager MFS Investment Management found that 40 percent of Gen Y’ers (ages 18-30) agreed with the statement, “I will never feel comfortable investing in the stock market.”