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Investments into stock funds outpaced redemptions by nearly $25 billion in April when the

S&P 500

and the

Nasdaq Composite

posted gains, according to figures released this week by New York fund consultancy

Strategic Insight

. Preliminary May flow figures from

TrimTabs.com

indicates that more than $10 billion has flowed into stock funds through the first 10 days of this month. This gush of new cash comes on the heels of record net outflows in March and February, months when the S&P 500 and Nasdaq lost ground.

The upshot: Investors continue to chase performance with their money, but they're actually taking a more conservative tack than a year ago.

Fund flows are closely watched as a barometer of investor sentiment, and they can give dry powder to both bulls and bears. For instance, optimists might make the logical argument that rising inflows are a positive sign for the market because fund managers putting that cash to work in the market would help boost stock prices.

But last year a record $309 billion flowed into stock funds, and that didn't keep the S&P 500 and the Nasdaq from losing 9% and 29%, respectively, according to

Morningstar

. In fact, in the up-is-down world of Wall Street, pessimists can read high inflows as a sign that stocks have hit a near-term high.

While flow figures may lead to murky conclusions for market strategists, they do underscore the widely held notion that fund investors tend to buy stock fund shares when the sun is shining on Wall Street and to yank money out when storm clouds gather. While instinctive, this reflex can whittle gains over time because it essentially translates to buying high and selling low.

During the first four months of this year, money has flowed into funds when broader indices made gains and out when stock prices fell.

The prevalent performance-chasing cycle has reached new extremes so far this year, reflecting the market's own volatility. Outflows in February and March cracked the top-five outflow months ever for stock funds, according to the

Investment Company Institute

, the fund industry's largest trade group. In fact, March's $20.6 billon outflow was the largest ever.

Beneath broad flow figures, fund investors

redeemed heavily from sagging growth funds in the first quarter, as the tech-heavy funds followed their favorite sector south. Steep outflows from one style of funds

can become a market event as fund managers sell shares of their favorite stocks to cash out rattled investors.

This nasty situation hurt value funds in 1998 and 1999 when their tech-light style fell from favor. Both value and growth styles took in more than they lost to redemptions in April, however, according to Strategic Insight's tally.

While investors' spirits may be buoyed by the market's recent gains, their tastes are still far more conservative than they were a year ago, before the Nasdaq's precipitous dive started in March 2000. In the first 20 weeks of last year, stock funds took in nearly $157.9 billion more than they lost to redemptions, compared with just $15.1 billion for the same period this year, according to TrimTabs.com.

At the same time, bond funds have taken in more cash than stock funds this year. That's a sharp change from last year, when they experienced net outflows.

This might lead some to figure that investors burned by the tech sector's meltdown are now toeing the diversification line. That might be the case, but given that the average U.S. stock fund is down 7.2% over the past year and the average taxable bond fund is up 8.3% over the same period, many are probably still just worshipping at the Church of What's Working Now.

Fund Junkie runs every Monday and Wednesday, as well as occasional dispatches. Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

imcdonald@thestreet.com, but he cannot give specific financial advice.