Newspaper article THE JOURNAL RECORD

Funds Face Old Questions on Crash Anniversary

Newspaper article THE JOURNAL RECORD

Funds Face Old Questions on Crash Anniversary

Article excerpt

NEW YORK -- If something like the Crash of 1987 hit the mutual fund industry of 1997, many of the effects might be quite different from what took place in the market meltdown 10 years ago.

But, in the eyes of most observers, the basic questions to be answered would still be pretty much the same: How would fund investors, fund managers, and the infrastructure of the industry itself withstand a sudden jolt to the system?

The funds are a much bigger force than they were a decade ago, with assets of $4.2 trillion now compared to less than $800 billion then. Most fund firms have greatly increased their communications and information-handling capacity, with the help of innovations such as the Internet. "By and large, I don't see huge risk in the system," Michael Price of Franklin Mutual Advisers said at a gathering of prominent managers sponsored by the FundManager Portfolios group of funds. "The fund industry is pretty healthy overall. I think it can meet redemptions." However, since nobody can tell what precise form a market convulsion might take, it can't be predicted for certain how the funds or their clientele would behave. All parties who were involved in the game in 1987 have the benefit of that experience to draw on. But a lot of time has passed, and many newcomers have arrived. "We haven't really stress-tested the system" in quite a while, said Robert Rodriguez of First Pacific Advisers, on the same panel with Price. In addition to electronic trading, Rodriguez said, the increased ranks of fee-based financial planners would logically play a much bigger part in a market shakeout today as they counseled investors either to sit tight or to take some action. The crash, and the subsequent resumption of the mighty bull market, went a long way toward conditioning stock and fund investors not to sell in stormy periods, but to think long-term, stay diversified and take bad market days like Oct. 19, 1987 as opportunities to buy at low prices. "I remember being like a kid in a candy store that day," said another participant in the managers' panel, Donald Yacktman of Yacktman Asset Management. …

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