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Growth Funds Slide as Tech Stocks Tumble
By Christopher Noble   Reuters
BOSTON — High-flying aggressive growth mutual funds have lost more than a quarter of their value over the past five weeks, in another glaring sign of the rush to dump technology stocks, mutual fund data showed on Friday.

Scott Olson /Reuters
Traders shout while signaling bids and offers at the Chicago Board of Trade

The drop in aggressive growth was the most severe aspect of an across-the-board fall in U.S. mutual funds in the last week, with nearly all categories showing losses and overall returns moving into bear territory for the first time this year.

Fund industry professionals said the recent volatility in financial markets was likely to continue, but investors should avoid selling in a panic. They believe funds were likely to post gains for the year.

But in the short term, investors could be in for more white-knuckled days. The Nasdaq was off more than four percent on Friday, bringing the technology laced index's loss to some 30 percent since its March 10 peak.

The pull-back in aggressive growth funds has in five weeks nearly matched the three-month decline triggered in 1998 by the Russian debt default and Asian financial troubles.

From July to October of that year, aggressive growth mutual funds dropped 35.69 percent, according to data from Moody's Investors, compared to a drop of 28.20 percent from March 10 of this year through April 13.

The average U.S. diversified stock mutual fund is down 0.11 percent for the year, data from Lipper Inc. showed.

"That's the nature of the beast — we say risk, we say diversify," said Louis Harvey, president of fund research firm Dalbar. "It certainly is no time to panic. I have been saying that volatility is going to continue."

Lipper data showed declines in all growth funds outpacing drops in all other categories. Science and Technology sector funds were down 16.17 percent for the week through April 12, leading drops in all other sectors, and 6.56 percent year-to date, Lipper said.

Telecommunications funds were the second biggest losers of the week, down 11.42 percent for the week and 5.11 percent year-to-date.

Despite the broad decline, data from fund tracker TrimTabs showed stock mutual funds had inflows of $14.3 billion over the five-day week ending April 12, compared to outflows of $1.8 billion in the prior week.

Real estate funds rose for the week, with Lipper data showing a 2.17 percent rise. Pacific funds that exclude Japan were up 0.44 percent and China region funds eked out a 0.22 percent gain for the week.

Dave Jellison, who manages the $245 million Columbia Real Estate Equity fund, said he had seen positive money flows in the last few weeks and good gains in his fund, but he said real estate fund managers were not gloating.

"Two-and-a-half years of a bear market, which is where REIT funds have been, teaches you humility," he said. Year-to-date, the fund is up 7.95 percent after a 2.5 percent loss last year and a drop of 12.3 percent in 1998, according to financial information firm Morningstar.

Harvey said he expected equity mutual funds to be volatile but to return to their usual 8 to 10 percent in 2000.

"I expect them to rebound as vigorously as they go down. I suspect that at the end of the year you will see some returns, but in Getting there you will see volatility.

"I expect equity funds to post normal returns this year," he said.

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