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Hot funds -- why worry?
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June 13, 1997: 12:25 p.m. ET
Some cautious managers rein in funds as investor expectations surge
From Correspondent Ceci Rodgers
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CHICAGO (CNNfn) - Mutual fund managers are celebrating another banner year as cash pours in and the market surges, but they also worry about inexperienced investors and their unrealistic expectations of the stock market
"There's a real feeling of recognition that there's an education that has to go on with investors," Morningstar Inc. president Don Phillips says.
Morningstar this week has hosted 1,000 fund managers at its annual conference, offering seminars on how to find values in today's expensive market and how to profit from the return of Hong Kong to China.
Vanguard Group is sounding the warning that mutual funds had better be prepared for the day when stock prices fall and investors demand their money.
"We now have an equity fund industry that's [worth] $2 trillion, and if everyone wants their $2 trillion back tomorrow, they're not going to get it," Vanguard Chairman John Bogle says.
Despite the underlying hesitance bred by such a strong bull market, Vanguard says it doesn't yet see the need to keep cash on hand for a rainy day. The firm is investing nearly every penny of the $700 million that comes in each month into its top fund -- right into stocks.
Vanguard is, however, taking steps to hold money flows in check.
Its S&P 500 index fund -- the No. 2 fund in the United States at $40 billion -- limits investors to only two transfers out of the fund per year. No telephone transfers are allowed.
Other managers are closing some more aggressive funds to new investors to rein in expectations.
"In the hot growth areas of the market last year we told people they shouldn't necessarily expect some of our funds to have that kind of performance," says David King, manager of Putnam Growth Fund. 
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