Investing December 27, 2000

Ill November Markets Shrivel Mutual Funds, Flows

December 27, 2000 (PLANSPONSOR.com) - Slumping markets drew the nation's combined mutual fund assets down 5.2% in November to $6.826 trillion, as cash inflows shriveled and asset values tumbled.
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The scenario is likely to be played out in 401(k) statements this quarter.

Stock mutual funds decreased by 10% ($428.5 billion) during the month, as net cash inflows of $8.82 billion were less than half of October’s $19.16 billion pace, according to Investment Company Institute figures.

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Assets of hybrid funds dropped by $11.1 billion and also had new outflows of $217 million for the month.  However, in October hybrid funds had suffered a net $1.17 billion outflow.

Bond fund assets actually increased by $679 million in November despite a net cash outflow of $639 million during the month.

Stocking Up?

With stock funds, domestic funds all experienced net cash inflows, but at a slower pace than in October, with:

  • Aggressive growth funds attracting a net $5.06 billion, down from $7.19 billion in October
  • Growth funds pulled in a net $3.99 billion in November, compared with $8.59 billion a month earlier
  • Growth and income funds had an inflow of $1.69 billion in November, in contrast to the net $262 million outflow in October.

On the other hand, stock funds that invest abroad saw some $2.88 billion in net cash outflow, up sharply from October’s $206 million pace.

Bond Reversal

Bond funds reversed October’s trends, with an outflow of $673 million in November for taxable bond funds, compared with $2.58 billion in October.   Municipal bond funds managed to attract a net $34 million in new November cash investment, down sharply from an inflow of $589 million in October.

Investing December 26, 2000

NASDAQ Settlement Checks Are In the Mail

December 26, 2000 (PLANSPONSOR.com) - Settlement proceeds from the record $1.027 billion NASDAQ Market Makers antitrust litigation are reportedly in the mail - but it could be a little while before affected pension plans see the money.
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Settlement lawyers told the Wall Street Journal Friday that checks were scheduled to be mailed “on or about December 23” to some 1,249,500 claimants. That includes both individual and institutional investors who filed claim forms by the cut-off date (December 8, 1999). At the time, investors were told that distributions would be made “by year end 2000.”

The litigation was brought on behalf of investors that traded any of 1,659 specified securities on NASDAQ from May 1, 1989, through July 17, 1996.

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Why Ask Why?

The case dates back to a 1994 study, “Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?” by professors William Christie and Paul Schultz, which indicated collusion in fixing “spreads,” the gap between prices at which NASDAQ market makers buy and sell stocks.  The difference for affected securities could be as much as $.125/share during the period in question.

In addition to the antitrust case, a late 1996 settlement with the Securities and Exchange Commission resulted in a number of changes that impacted trading and pricing practices for NASDAQ traders.

Left Overs?

Claim checks will range from just $25 in some cases to more than $11 million – the largest single recovery, by one unidentified institution, according to the WSJ.

Once fees and expenses have been taken out, the total pay out will only amount to about $896,233,301.  Institutional investors should get about $1.65/share, with individuals retrieving about $2.47/share, or $25/claimant, whichever is larger. 

Institutional investors got a smaller proration, in an acknowledgement of the pricing/trading advantage institutional investors generally have.

Still, nearly 85% of the claimants were individual investors, according to the article.

The NASDAQ itself wasn’t accused, and the firms involved settled without admitting or denying wrongdoing.

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