Newspaper article The Christian Science Monitor

Stuck in a Soft Patch ; Investors Move Cautiously amid a Traffic Jam of Concerns Including the War in Iraq, Slow Job Growth, and the Rising Price of Oil

Newspaper article The Christian Science Monitor

Stuck in a Soft Patch ; Investors Move Cautiously amid a Traffic Jam of Concerns Including the War in Iraq, Slow Job Growth, and the Rising Price of Oil

Article excerpt

If the past quarter were a major roadway, it would be covered with mud. For the entire summer - for most of the year, in fact - mutual-fund investors have been spinning their wheels. And they're driving with caution.

Who can blame them?

Everywhere they look, uncertainty looms - from the Iraq war to the choice of president to the nation's slow-motion recovery.

The cautious outlook has led to cautious action, which could be seen in the fairly modest amount of new money investors poured into mutual funds, the types of funds they chose, and the relative weak performance of different fund categories.

In July, for example, investors added only about $8 billion to stock funds, according to Lipper Inc. That's the lowest total since inflows turned consistently positive in March 2003. In August, the total rebounded somewhat to about $11.5 billion - but still remained low compared with the last 18 months. Meanwhile in July and August, investors added about $1.3 billion to bond funds and took out some $16.4 billion from money-market funds.

While much of the money-market withdrawals went into stock and bond funds, experts are concerned that people are not investing enough of their money.

"It is a concern, yes," says Don Cassidy, senior analyst at Lipper. "We're seeing a larger pattern which probably has been created by the overall constellation of worries. The election. Terrorism. The lack of job creation. Also, people are no longer able to refinance their houses at cheaper and cheaper rates, and that's slowing down their cash flow, which makes less money available for investing."

Even the few winning fund categories of the third quarter reflected this caution. To find the best-performing funds, as well as the ones that took in the most money, all an investor had to do was look for funds that included "gold," "real estate," or "natural resources" in their names.

In many cases, looking for natural resources really meant prospecting for oil. With oil prices sloshing around $50 a barrel as the quarter ended, natural-resource funds gained 10 percent for the quarter. Consumers, of course, had to shell out more for gasoline while they anticipated paying more for heating oil this winter. But higher prices helped oil and gas companies - and their equipment suppliers - reap larger profits.

A golden lining

Periods of uncertainty traditionally benefit gold funds, and the past three months were no exception as these funds gained nearly 15 percent.

"There is some element of caution out there," says Bill McNabb, managing director of the Vanguard Group in Valley Forge, Pa. "There's certainly a lot of geopolitical uncertainties."

Real estate funds also did well, gaining more than 7 percent during the period. "People are going there because they can find the comfort of current income and value," Mr. …

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