Fund Investors Again Step Up to ‘Buy the Dip’

Thanks to the tech-stock sector’s plunge, mutual fund investors have backed off from their super-aggressive stance of the first quarter, when they pumped a record $130.2 billion in net new cash into stock funds.

Yet reports from many fund companies indicate that, even while some investors have bailed out of high-risk funds this month, plenty of others are stepping up once again to “buy the dip” in the market.

Janus Capital, whose Janus stock funds have been among the hottest funds over the last year in large part because of their high-risk, high-return strategy, said its equity funds’ net cash intake this month has been about $3 billion--the lowest in six months.

Nonetheless, the still-positive number suggests that the severity of the decline in major tech stocks and other highly valued stocks favored by Janus’ funds hasn’t triggered a wholesale flight by investors. Or at least, whatever money is leaving the funds is being more than offset by new buyers attracted by the decline in funds, such as Janus 20, from their March peaks.

Janus 20, loaded with major tech stocks, is down 15% from its March record high.

Other fund companies report a similar experience. T. Rowe Price Associates said its Science & Technology fund has taken in a net $300 million this month, even though--or perhaps because--the fund’s share value has been down as much as 27% from its March peak.

“For all the market volatility, we haven’t seen the kind of investor activity you’d expect”--meaning heavy fund redemptions, said Steve Norwitz, a spokesman for T. Rowe Price in Baltimore.

Still, some companies whose funds are closely identified with the “new-economy” stock surge of the first quarter say their cash intake has fallen sharply and, in some cases, become an outflow.

RS Investment Management, a $10-billion-asset fund group in San Francisco, has begun to see “very slight outflows” from its Internet fund, a spokeswoman said. The RS Information Age fund, which was attracting heavy cash inflows through March, now is seeing “moderate” redemptions, she said.

Some investors are going back to basics: Vanguard Group said it has seen a sharp pickup in buying of its “value” stock funds and its Index 500 fund this month. In March, Vanguard Index 500, which tracks the Standard & Poor’s 500 index, experienced its first net cash outflow since the early 1990s, as some investors apparently cashed out to buy more aggressive funds.

For the fund industry overall, the Investment Company Institute, the industry’s chief trade group, said Thursday that stock funds took in $35.6 billion in net new cash in March, down from $53.7 billion in February. (Net new cash is purchases minus redemptions.)

Meanwhile, investors cashed out a net $13.9 billion in bond fund shares in March--and $46.1 billion in the first quarter overall--continuing the trend of the last year as rising market interest rates have depressed bond fund share values, causing investors to flee.

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Tracking the Money

Mutual fund investors poured a record $130.2 billion in net new money into stock funds in the first quarter, and also added to their money market fund accounts. But bond mutual funds saw an avalanche of cash come out. Quarterly net new cash flow, in billions of dollars, by fund category:

Source: Investment Company Institute