Losses deepened for stock fund investors in February. Equity funds lost an average 2.4 percent, outpacing the decline in the benchmark Standard & Poor's 500 Index, according to preliminary data from fund tracker Lipper.
The biggest losers were technology and telecommunications funds, which slid 14 percent and 12 percent respectively. Firsthand Funds' Communications Fund had the steepest drop among funds with assets of at least US$100 million, shedding 28 percent.
Among diversified US stock funds, the gainers were equity-income funds, mid-cap value funds, and small-cap value funds.
Large-cap stock funds fell as investors avoided companies with complex accounting practices after the collapse of Enron Corp, said Larry Puglia, manager of the US$6.5 billion T. Rowe Price Blue Chip Growth Fund.
"Accounting transparency has been a key issue for investors, and accounting transparency tends to be more of an issue at larger, more complex companies," Puglia said.
Of the US$2.39 trillion invested in diversified US stock funds as of Jan. 31, US$1.08 trillion was invested in large-cap funds, according to Lipper.
Large-company stock funds also were dogged by technology companies, whose shares fell on concern the economic rebound would be too weak to drive earnings at computer-related companies as much as anticipated.
Intel Corp, the second-largest component of the Nasdaq Composite Index after Microsoft Corp, fell 19 percent last month.
Cisco Systems Inc, the third largest, fell 28 percent.
"There's concern about how strong the economic recovery is going to be, and particularly how strong any rebound in technology spending will be," Puglia said.
That also explains why value funds, which seek shares priced low relative to their earnings, continue to fare better than growth funds, which seek fast-growing companies, fund managers said.
Value companies are "closer to the consumer, and consumer spending has held up better than business spending," said Ron Sloan, manager of the US$1.06 billion Aim Mid Cap Equity Fund. The fund's largest holdings include Adolph Coors Co, the third-largest US brewer.
Mid-cap funds fared better than large- or small-cap funds because slow economic growth favors them, Sloan said.