BOSTON (Reuters) - Tumbling global equity markets prompted millions of American investors to switch stock funds for bond portfolios, but financial advisers are urging them to stop hasty sales that might just make a bad situation worse.
Panicked by recent relentless selling around the world, U.S. investors pulled $25 billion out of U.S. stock funds and removed another $11 billion from international stock funds, making January one of the worst months for equity mutual funds in years, data from research company TrimTabs shows.
For safety, they plowed $7.6 billion into bond funds and left billions sitting on the sidelines in cash, analysts said.
"With the global sell-off, I believe a tide in investing has turned," said Conrad Gann, TrimTabs' chief operating officer, explaining that investors' love for international stocks might soon end and hamper mutual fund companies like Franklin Resources (BEN.N), which specializes in global funds.
In January, the average U.S. stock equity fund had lost 9.89 percent through Thursday while the average world equity fund was off 9.73 percent, according to data from Reuters' unit Lipper Inc.
Some of America's best-known large mutual funds, including Fidelity Investments' Magellan Fund and Legg Mason's Value Trust Fund, rank among the year's biggest losers. Magellan's 11.92 percent decline this year comes on the heels of last year's 18.8 percent gain.
And the selling is not letting up, especially at funds that are stocked with suffering financial companies that are nursing heavy housing market related losses, investment advisers said.
Even after Tuesday's unexpected Federal Reserve interest-rate cut helped curb some losses, investors reported that it took longer than usual to execute trades with large mutual fund firms like Fidelity Investments.
Because the sell-off coincides with investors worrying about losing their jobs and at a time they can't rely on booming housing prices to offset sagging funds, analysts are already calling this the worst crisis since 2000, when technology stocks sold off hard.
"We are counseling investors to brace themselves for worse by saying 'buckle yourselves in, there will be more of this,"' said Lawrence Glazer, managing partner at Mayflower Advisors, an advisory firm for corporations and individuals in Boston .
At the same time, financial advisers are urging clients to be patient and stick with a diversified portfolio instead of rushing into safe-haven investments like bonds.
"We are getting a lot of questions and the most important thing to do right now is not to overreact and do something foolish," said Timothy Jester, director of research at Capital Advisory Group in Richmond, Virginia.
The only change the group might suggest would be to put a smidgen more money into emerging markets where returns have slumped 9.42 percent this year according to Lipper but economies are strong and should grow in the months ahead.
Indeed Paul Hynes, an investment management analyst at the San Diego office of the Burns Advisory Group, warns that jumping blindly into the bond market now might be a losing bet. "With 10-year Treasuries yielding 3.5 percent you would lose money after subtracting inflation and fees," he said.
While it might sound odd now, his firm favors the heavily beaten down financial stocks many of which suffered billions of dollars of losses on soured housing market bets. "Banks are critical in economies and they will write off everything they can now and look a lot better in the future," he said.
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