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Value Funds Turn In Strongest Cash Flows Since July '99

Figures may signal broader shift away from tech and growth funds.

The long-awaited tectonic shift in investor sentiment away from high-octane, tech-heavy growth funds may be starting -- if slowly.

In October, fund investors yanked out $1 billion more than they invested in value funds, according to a report Tuesday from Boston fund consultant

Financial Research

. That might not sound great, but it's value funds' strongest showing since July 1999 and continues a trend of narrowing outflows. In fact, small-cap value and mid-cap value funds had net inflows of $20 million and $52 million in October -- their first month of positive flows since May of last year.

The upshot: Value funds, which shop for bargains in the stock market, are outperforming growth funds, which typically pay steep prices for shares of the fastest-growing companies, for the first time in several years. Fund investors' money is starting to chase those better returns in value.

Fund flows tend to follow well behind performance, but they're worth noting since they can move the market -- and they signal broader changes in investor sentiment. After all, much of 1999's stunning returns -- the


tech fund gained 135% -- were credited to record-setting investments in growth funds.

While cash flow into growth funds is still strong, some cracks are starting to show. Flow to mid-cap growth funds dropped some 18% from September to October, according to FRC. And flows to the battered communications funds dropped 19% from September to October. The outflows come on the heels of disappointing performance: The average mid-cap growth fund is off 5.5% since Jan. 1, while communications funds are off 27% on average.

The shift in sentiment is also beginning to show up among fund groups that rely on tech funds and tech-heavy growth funds for much of their sales.

PBHG Funds


Munder Capital


Firsthand Funds

are all among this year's 20 top-selling fund shops, but all saw net outflows from in October, according to FRC.

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Growth-fund poster child


is still the year's top-selling house, but in October investors withdrew $772 million more than they invested in the family's funds. While these net outflows are certainly worsened by the fact that many of Janus' most popular funds

are closed, it does suggest that current Janus shareholders aren't rushing to buy more.

At the same time, fund firms known for their value investment strategies are gaining ground. Big-value shop

Franklin Templeton

saw just $3 million of net outflows in October, compared with nearly $5 billion in total outflows for the year through Oct. 31.


Davis Selected Advisers

, best known for its large-cap value

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Davis NY Venture fund, took in more than $550 million in October. The fund was among the top-10 sellers that month.

A glance at October's top-selling funds further illustrates a broadening beyond big-cap growth and tech stocks. In addition to Davis NY Venture, the top-10 best-seller list also includes

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Vanguard Total Stock Index, which tracks the broad Wilshire 5000 Index, at No. 8. And the

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Pimco Total Return fund, an intermediate-term bond fund run by guru Bill Gross, turned up at No. 7.

The Pimco fund is the seventh-best selling fund this year, taking in more than $4.7 billion through Oct. 31.

Institutional investors, which include the 401(k) plans where many individuals invest for their retirement, are broadening their horizons, too. The top-selling fund in October was the

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Vanguard Institutional Index Plus fund -- which essentially tracks the S&P 500.

There were limits to investors' movement away from U.S. growth funds. International and global stock funds were hit with net redemptions in October after three straight months of inflows. The scoreboard probably drives investors' flagging interest in foreign stocks. Every foreign or global stock fund category is under water this year, according to Morningstar.