(August 1) – “Undeterred by stock-market turbulence, investors are continuing to up their ante in the belief that mutual funds will prove a good bet,” writes Aaron Lucchetti in today’s Wall Street Journal.

“Investors in June put $22.4 billion of net new cash into stock funds, up 31.3% from May and 18.5% from June 1999, according to the Investment Company Institute, a mutual-fund trade group that published its monthly report Monday. That boosted the total net new cash going into stock mutual funds in the second quarter to $73.4 billion, the strongest showing for the April-June period for stock funds on record.”

“In July, movement into stock funds appeared to continue, although not across the board, according to fund companies. Fidelity Investments, Vanguard Group and Janus Capital Corp. were all on track to pull more money into stock funds in July than June. But the fund supermarket operated by Charles Schwab Corp. had pulled less money into stock funds through last week, and T. Rowe Price Associates said money flowed out of stock funds last month.”

“Much of the money arrived at fund firms’ doorsteps even as the Nasdaq Composite Index in particular was declining sharply. The broader stock-market indexes also lost ground during the quarter. Indeed, the recent sub-par performance didn’t deter investors, who have become used to seeing stock-market downturns end quickly.”

” ‘People have become indoctrinated’ to keep up their investments in stock mutual funds, says Peter Starr, a managing director at Cerulli Associates Inc., a Boston financial-services consulting firm.”

“Investors’ determination to stay in stocks this summer and the technology frenzy earlier this year have combined to give mutual funds full coffers to invest. Stock funds attracted $212 billion in assets over the first six months of the year, up 135% from 1999 and 57% from the previous high-water mark in 1996. Funds specializing in technology and large, fast-growing companies attracted the most assets, even though both categories were among the worst performers in the second quarter.”

“Mutual-fund investors’ resilience has aided in keeping the stocks from falling further in what has proved a difficult year so far. Fund investors have helped the stock market, says Laszlo Birinyi, president of market research firm Birinyi Associates, especially broad indexes such as the small-stock heavy Russell 2000 Index.”

” ‘If you saw a cessation of demand in these funds, then the Russell [small-stock index] would suffer significantly,’ he adds. The Russell 2000 has fallen 0.7% since the beginning of the year.”

“Investors continue to place huge chunks of their assets in technology funds and other asset-classes that have worked well in the past two years. Hot on the heels of 1999’s big gains, investors have put $31.7 billion into technology-sector funds in the first half, according to Financial Research Corp., Boston. In addition, technology funds have attracted new assets in 17 of the 20 weeks since the Nasdaq Composite Index peaked in March, says AMG Data Services, Arcata, Calif.”