Changing Course?

In April, $25 billion in new cash flowed into mutu

April saw a surge in equity cash inflows, with figures hitting nearly $25 billion, results that more than counter-balanced the net redemptions of equity funds in the prior two months, according to Strategic Insight. Through mid-May, equity fund cash inflows reached about $40 billion, the New York-based research firm estimates, a sign of investors' renewed confidence in the markets.

"During April, the average equity fund's NAV has recovered about 8%," says Avi Nachmany, Strategic Insight's director of research, in a prepared statement. He says both U.S. and foreign equity funds demonstrated inflows recently, which spanned a wide range of investment styles. And in the U.S., gains were noticeable in value and growth stocks, small-cap and large-cap, and even in tech funds, Nachmany says.

The research firm estimates that U.S. value funds captured over $6 billion in net new flows in April. The fastest growing value fund market-cap categories were small- and mid-cap funds. U.S growth-style funds also rebounded, experiencing inflows of nearly $7 billion, and like value funds, experienced gains in all market cap segments. Balanced funds also saw inflows, the research firm says. And among international equity funds, a number of diversified programs increased their inflows in April, with smaller gains in European and Pacific funds.

Daniel Bandi, CFA and portfolio manager of National City Bank's Armada Small Cap Value Fund, says assets in the Armada funds "are up at least 10% year to date in small-cap funds. There are strong inflows into [our] small-cap value funds." He says for all of 1999 through the first half of 2000, the bank saw consistent outflows in its large-cap value fund, but that has stopped. "Large cap value has turned positive, but we're not seeing the growth that small-cap value is experiencing."

Bandi says Strategic Insight's estimates show that "investors haven't given up on the market. Individual investors are optimistic about the long term [market outlook] and pessimistic about the near term."

Nachmany also says that, " Improving long-term economic outlook resulted lately in an up-tick of long-term interest rates in April, and bond fund total return in April was slightly negative (about -0.8% on average). With falling NAVs, some tax payment of assets temporarily held in a bond fund, and selected redemption activity, bond funds--in total--experienced a slight net redemption activity in April. Yet, lingering economic concerns and a widening yield curve suggest that bond fund sales may increase later in the year."

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