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It's all about performance.

That's the message many investors seem to be sending index mutual funds.

Cash-flow figures through the first half of this year show that many do-it-yourself investors have lost their appetite for funds that try to match the performance of stock-market indices -- typically seen as standard core holdings due to their diversification, low costs and tax-efficiency. Instead, they're pumping money into actively managed funds, mainly those from growth shops such as


that are swinging for the seats rather than tamely tracking a broad index.

The conventional wisdom has typically been that funds tracking a broad stock index are excellent core holdings since they provide market-like returns over the long term without high fees or excessive trading that can lead to taxable capital-gains distributions. But the cash-flow figures suggest some folks who piled into them in recent years were less focused on consistent, long-term growth than on the high returns of funds tracking the

S&P 500

, which had a solid streak of 20%-plus annual returns when big-caps headed north from 1995 through 1999.

"Half of them bought them for the right reasons and half were opportunists. The opportunists were less enamored with indexing than they were with the performance. Now it's all growth and sectors like health care and tech," says Avi Nachmany, research director at New York-based fund consultancy

Strategic Insight


The reason: Popular indexes like the S&P 500 are flat or down for the year.

Index fund firms, for their part, say they're not losing a lot of sleep over the trend. "It's interesting, but it's not surprising. People tend to chase performance in the short term," says John Demming, a spokesman for $570 billion index-fund titan


. The firm doesn't comment in detail on cash flows, but Demming confirms that the shop's index funds are cash-flow positive this year.

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"It's all about past performance," Nachmany says.

The average S&P 500 fund is down 1.1% for the year, but the

(VFINX) - Get Vanguard 500 Index Inv Report

Vanguard 500 Index fund is down only 0.6%, according to


. The $105.6 billion fund is the nation's largest fund, capturing more than 40 cents of every dollar invested in S&P 500 funds.

In the direct or no-load fund market, investors have put $11.8 billion into index funds this year through June 30, compared with $55.5 billion for actively managed funds, according to Strategic Insight. More than $35 billion of the cash going to active funds has gone to growth specialist Janus, illustrating investors' rising appetite for high-octane strategies. Thanks to a firm-wide bet on tech and telecom stocks, the average Janus fund posted a stunning 81% return last year, but several of its funds are underwater so far this year.

Over the past two calendar years, index funds outsold active funds by wide margins. In 1998 and 1999 the S&P 500 -- the peg of choice for a vast chunk of the index-fund market -- posted returns of 28.6% and 21%, respectively, both around twice the index's historical average return. While plenty of indexers may have bought shares for the funds' tax-efficiency and low costs in those years, index funds' recent cooling might have uncovered many other investors' real motivation: performance.

"We all wondered how many of those investors were in these funds for the right reasons and how many were in them for their performance," says Scott Cooley, a senior fund analyst at


. "I think it's just a matter of S&P 500 funds not performing as well as funds with a smaller-cap focus and sector bets."

Cooley and Demming both note that indexing is a strategy whose strengths are typically borne out over time. If mega-cap growth stocks aren't solidly in favor, for instance, actively managed funds that focus on hot sectors or smaller-caps can easily outshine them. Though fund companies like Vanguard beat the drum for a long-term focus, investors looking at flat performances tend to get happy feet.

Their taste for Janus shares and the unprecedented glut of new

wireless/telecommunications funds and

tech funds indicate a rush to focus on hot industries, even though the average tech fund is up only 0.4% this year. Recent tech converts are probably focusing on last year's performance: The average tech fund posted a whopping 135% gain in 1999.

Of course, the Janus love-in is probably due to slow down since about half the firm's funds are now closed to new investors. Aside from Janus, no-load investors' other favorite fund shops --



Pilgrim Baxter


Firsthand Funds

-- each has a growth/tech bent.

Nachmany says the trend to make more focused bets instead of tracking the market is also demonstrated by recent flow figures from leading online broker

Charles Schwab

. Through June 30, Schwab and affiliate

U.S. Trust

have taken in $90 billion in fresh cash. Strategic Insight estimates that $74 billion of the money has been invested in individual stocks or bonds.