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Preliminary figures show record outflows from sagging stock funds last month and strong inflows this month. The eye-catching numbers will give both bulls and bears dry powder, but might only prove the old saw that mutual fund cash flows follow performance.

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For the 12 months ending March 31, the

S&P 500


Nasdaq Composite

were down 22% and 59%, respectively. In March, redemptions from stock funds outpaced investments by a record $15.4 billion, a lot of money but less than 1% of stock fund assets, according to figures released Monday by fund tracker



But over the past two weeks ending last Thursday, a period in which the S&P and Nasdaq rose 14% and 33%, respectively, stock funds are in the black to the tune of $9.4 billion, according to data released on Monday from liquidity tracker


The upshot: Mutual fund investors often might be buy-and-hold types, but many tend to do most of their buying and holding when stock prices are rising. The vast majority of fund investors hung on to their stock fund shares, but those who sold tended to dump shares of their tech- and tech-heavy growth funds, a trend that could put pressure on the tech sector if it continues for several months.

As usual, preliminary estimates from


and New York fund consultancy

Strategic Insight

vary slightly, but both firms' estimates show that investors favored the relative safe harbor of bond and money market funds over stock funds in March. Cash flows to bond and money market funds often rise in the first quarter as investors squirrel away money to pay their tax bills, but it was the second straight month of net outflows for stock funds.

Half of the money that gushed out of stock funds in March came from growth funds, according to Lipper. They lost $7.7 billion last month, compared with $2.8 billion of inflows for value funds. This is the same pattern we saw in February as tech-light and price-conscious value funds have outpaced tech-heavy and more aggressive growth funds. Over the last year, the average big-cap value fund is up 5.8%, compared with a 22.7% tumble for the average big-cap growth fund, according to



Tech funds' outflows added up to about $1.6 billion, or some 2% of their assets, according to Lipper. The average tech fund is down more than 44% over the past 12 months.

Fund flows are always closely watched as a barometer of investor sentiment. While some will see these outflows as a sign that pessimism and stock prices are bottoming, others could use the same data as evidence that outflows will be a burden on stock prices.

Here's why: If outflows persist for several months, fund managers selling stock to cash out rattled shareholders can add an unforeseen dollop of selling pressure on already battered stocks. This can trigger a vicious cycle in which sagging performance begets outflows, begetting even worse performance and more outflows.

This cycle hurt value funds when their price-conscious style fell out of favor in 1998 and 1999. February outflow data indicated that tech- and tech-heavy growth funds like

the Janus funds, the top-selling categories in recent years, composed much of that month's outflows. If money keeps flowing out of these funds for a few months, those sales could weigh on the Nasdaq.

There appears to be little reason to be too concerned about growth-fund outflows yet, however, because current redemptions don't add up to a big chunk of funds' assets. Monthly fund outflows typically equal around 3% of assets and last month's outflows were within that range, equaling about 3.4%, according to

Strategic Insight


"You have to keep these redemptions in the context of this market," says Avi Nachmany, director of research at Strategic Insight. "In the big picture, we've had an absolutely horrible investment period with accelerating investment fears. All in all, even on the growth side of the equation, you had just about 1% of assets redeemed."

For comparison, investor redemptions added up to 7.6% of fund assets in October 1987, according to Nachmany. Also, some 65% of fund assets are held in tax-deferred retirement accounts with long time horizons, according to the

Investment Company Institute

, the fund industry's largest trade group. Having billions tied up in accounts in which investors are 20 years or more from their retirements also keeps redemptions down.

"We're seeing that sustained poor performance can give professed buy-and-hold investors an itchy trigger finger, but considering the amount of money in funds, the March outflow was a trickle, not a flood" says Lipper senior research analyst Don Cassidy.

Things are not all sunny, however. March's outflows might look modest on a percentage basis and the more recent inflows this month also point to rising fund-investor confidence, but investors' appetite for stock funds is way down from a year ago.

By this point last year, for instance, U.S. stock fund investments outpaced redemptions by $96 billion, compared with just $8.7 billion this year, according to

. Bond and balanced funds, which were in net redemptions at this point last year, are in the black, and investments in money market funds are up, too.