SHORT INTERESTS: TIPS,TRENDS, OBSERVATIONS

Investors giveth, taketh

Investors have been pouring money into stock mutual funds, largely through 401(k) plans, but have been selling even more of their other stock holdings.

Analyzing Federal Reserve Board data, David L. Babson & Co. in Boston says the impact of the net selling has been masked by a robust stock market that has more than doubled stock prices since 1995.

The investment management firm figures that individuals sold $329 billion of stocks in the first three quarters of 1997, up from $292 billion in the year-earlier period, while net flows into equity mutual funds were $159 billion through Sept. 30, down from $191 billion in the 1996 period.

An identity crisis, perhaps?

Recognizing that their small-cap holdings had swollen and drifted into mid-cap territory, officials of the $3.8 billion Baron Asset Fund launched a small cap version in October. But when Morningstar Inc. downgraded Baron Asset’s rating to four stars from five in November, Morty Schaja, managing director, wrote to investors touting the fund’s 30.24% three-year average annual return and compared that to -yes – a weaker small-cap index.

So, which is it? Mr. Schaja hedges: “It is clearly not a mid-cap fund, but it is more mid-cap in nature than Baron Small Cap Fund.”

Either way, Baron Asset is back up to five stars.

Buyer beware

Practice makes perfect, the saying goes, and if January’s Consumer Reports is any indication, financial advisers need lots of it.

Reporter Tobie Stanger provided her financial data to two independent planners and three advisers from big-name brokerages. The article didn’t name the individuals, who had been recommended by the National Association of Personal Financial Advisers and the Institute of Certified Financial Planners. But the brokers – at Merrill Lynch & Co., Prudential Securities and American Express Financial Advisors – got even lower marks than the independents, who at least addressed planning for retirement, education and special medical needs.

Still, all t
he plans were lacking. Most disturbing to Ms. Stanger: “It required an expert (Deena Katz of Coral Gables, Fla.-based Evensky Brown Katz & Levitt) to point out the severe discrepancies.”

A Merrill Lynch spokeswoman did not return our calls. A Pru official notes that financial planners charge clients up to $2,000 while her brokers provide a basic financial plan “for free.” An American Express memo to brokers about the article says, “It’s difficult to evaluate a plan on a one-time basis.”

Marlene Star, Anna Robaton and

Howard Kapiloff