Growth Stocks Capture Most New Investments

Net new investments into stock mutual funds last month were strong, initial industry estimates show.

Yet surprisingly, most of that money appears to have gone to a small but familiar list of popular growth-stock funds--and not to small-company stock funds, emerging-markets funds or other recently out-of-favor funds that surged sharply during the month.

In fact, nearly 85% of net new mutual fund investments in April went into the 25 best-selling funds--a list that includes familiar growth-stock portfolios such as Janus Twenty, Fidelity Blue Chip Growth and Munder Net Net, according to Boston-based Financial Research Corp.

And more than half of the April flows could be explained by money pouring into two of the nation’s most popular fund companies: Vanguard Group and Janus.

Which means, despite the broadening of the market, many funds and fund companies are still seeing net redemptions.

“It’s always baffling, but investors are making their decisions based on last year’s numbers, not last week’s or last month’s,” says Bill Dougherty, an analyst with the Boston-based mutual fund consulting firm Kanon Bloch Carre.

While institutional investors study the numbers every day to try to spot signs of stock market rotation, “99% of individual investors” do not follow the numbers so closely, notes Avi Nachmany, analyst at fund-research firm Strategic Insight in New York.

In April, for instance, the Russell 2,000 index of small-company stocks rose 9% (versus the 3.9% rise in the Standard & Poor’s 500 index of blue-chip stocks). But investors appear to have pulled more money from small-company stock funds than they put in, according to early estimates from the Santa Rosa-based research firm Trimtabs.com.

Official April numbers, compiled by the Investment Company Institute, are due out today.

Also, while the typical diversified emerging-markets fund advanced more than 13% in April, investments in emerging-markets funds were relatively flat, according to a preliminary estimate by Trimtabs.

“People’s memories are long,” said Trimtabs Director of Research Carl Wittnebert. “They remember what happened with these funds over the past several years.”