Tabell’s Market Letter – June 16, 1978

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER New YOAK STOCI( EXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE June 16, 1978 A regularly released series, appearing recently in the financial news, was the monthly mutual fund- Sales- CirtnutUaTfUiids;'-exCllldfngnfi)ney 'iriarket fiifids-; a-mounteeT-to 6-2-5 ' Aided by rising stock prices, total net assets of these funds climbed to 46.6 billion in April, Redemp- tions also increas ed in April to 580.2 million. The analysis of these mutual fund statistics is difficult without an explanation of the history of the series. For many years the Investment Company Institute has made available these statistics relating to the mutual fund industry. We have in tum been making available analytical measurements based on these statistics and have been maintaining the figures in our computer data bank. Since the beginning of the series in 1954, the raw figures, as released, worked well for this pur- pose. Until recently, most mutual funds were in fact common-stock oriented. This is no longer the case. Around 1974, money market funds began to gain popularity as an investment vehicle, and, for a while, statistics were distorted by the growth of these funds. The ICI recognized this and properly began separating money market fund figures from those of conventional mutual funds. More recently, however, new non-common stock vehicles have appeared 'on the scene. With growing investor interest in income and a wide spread between stock/bond yields, bond funds have gained increasing popularity and new sales of thos e funds have dramatically increased. Also, with the advent of new legislation, municipal bond funds have become an important factor. The activity of non-common stock funds, therefore, has become a major factor In this series. Unfortunately, through- out 1976 and early 1977, the necessary figures to isolate the activity were unavailable and, therefore, caused distortions. Quite correct ly, this situation has changed as the ICI has released separate statistics covering bond and muni cipal bond funds. An interesting fact to note in factoring out bond -de-Eyoenaars Statistics cipal bond funds thus covering common stock oriented funds only. Having outlined the background of the series, it must be kept in mind, in looking at mutual fund statistics, that we are looking at the behavior of two different groups of individuals. When we look at sales and redemptions, We are examining the behavior of the mutual fund investor. When we look at changes in the cash position of mutual fund assets, we are noting decisions made by the mutual fund manager. With this in mind, let us look at a few of these statistics. The historical tendencies of fund redemptions have been that it dries up sharply during bear markets, rebounds a bit after bot- toms, and then begins a new sharp rise as a bull market gets underway. Generally, the level of redemptions levels off fairly close, but in advance of the end of a bull market. The last redemption peak was in March, 1976. Since then, the series has dried up sharply, reaching a low in April, 1978, and, in fact, has increased considerably through April of this year suggesting the possible start of a new bull market. Historically, sales tend to dry up along with redemptions during bear markets. After rebounding a bit, they generally do little during the early stage of upswings and generally commence a sharp increase around the middle of a bull market cycle. Thus, the recent rise in sales must be considered an encouraging factor and would, If it were to continue, suggest a healthy market. Finally, an analy- sis of the amount of their portfolio that mutual fund managers have chosen to retain in cash, leads us to some interesting conclusions. Cash pOSition generally tends to reach a peak near major market lows, to decrease sharply as bull markets get underway, and, finally, to remain flat for a period of time, increasing again as bear markets begin. Thus, cash position reached an all time high of 13.5 40 a -month' before' the bottom ii1-1974 'ano declined to lowof'4'. 92in'September DoW—o- approached its high in the 1, 000 area. Since then, the cash position has increased, as the chart on the opposite page shows, and appears to be peaking around the 10 level suggesting a possible major market low. Also, it is interesting to observe a four-year cycle, from 1958 to date, appears to have developed as the mutual fund cash/ asset ratio peaks. Therefore, the most bullish configuration of mutual fund data in the coming months would consist of a continuing rise in sales accompanied by a like rise at a somewhat slower rate in redemptions. This should also, on an historical basis, be accompanied by a willingness of managers to invest the cash inflow and reserves. It will be interesting to see how this scenario unfolds. Dow-Jones Industrials (1200 p.m.) 842.17 ROBERT J. SIMPKINS, JR. S&P Composite (1200 p.m.) 97.98 DELAFIELD, HARVEY, TABELL Cumulative Indes (6/15/78) 751. 80 No statemenl or expression of opInion or any other motter herein contained IS, or IS 10 be deemed to be, dlreclly or Indirectly, on offer or the SOIICltolll)o of on offer to buy or sell any security referred to or mentioned The mOiler IS presented merely for the convefllencs of the subscnber While oNe believe the sources af our Informat.an to be relloble, we In na way represent or guarantee the occurocy thereof nor of the statements m..,de here.n Any OellOn to be taken by Ihe subSCriber should be based on hl own Investlgollon and Informal lon Janney Montgomery Scali, Inc, as a corporation, and Its offICers or employees, may now have, or may laler take, poslhons or hade!. In respect 10 any secUrilies mentlaned In thiS or ol'ly future Issue, and such POSition may be dlfferenl from any views naw or hereohet expressed In thIS or any other Issue Janney Montgomery Scott, Inc, which IS reglslered With Ihe SEC os on Investment adVisor, may give odvlce to Its Investment odvlsory and olhel customers mdependently of any sloleme1lls made In Ihls or In any olher 'we Further mformatlon on any security mentioned herem 15 aVOllable on request 1200 1100 1000 .00 800 700 -a 600 -, Q 500 00 300 I il '. 1 l200 ))00 1000 !IJ) BIlO 1111 son 000 30Il 13 12 II 5 11954. f(\ 1\ 1-1 11955 -r1956 11957 ' , , I. II ,I, 'I' 1 I I /' 1/\ , ;J1 Iv f\ \, \tA , III 1111111111 11958 11959 1960 1961 A Ir 1962 11963 I I I 1\ rfif Y\ I ! 1, III 111111111 )1964 1965 1966 1967 A Af\ lfY V 11968 11969 11970 13 12 I I ! Iv ! 11 r 10 8 j! 7 1 h IrJ \ jI II I5 MU' UAL FUN ') CAS MIAS ET 1111,1111' 1111111111 11111111111 1111111111 III 11971 1972 1973 ' 1974 1975 PAT I b ( 1IIIIIIIIIt T II ' iJ976 1977 1978