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March share market gains erase losses of US mutual funds

US stock mutual funds barely broke even in the first quarter after advancing in March for their first monthly gain this year.

The average US stock fund rose 0.3 percent for the year through Wednesday, according to estimates by fund tracking company Lipper. They added 4.9 percent in March after losing 2.1 percent in January and 2.4 percent in February.

Money managers who seek value stocks, those priced low relative to their earnings, fared better than those who focus on fast-growing companies, repeating the pattern the past two years.

As the economy recovers, boosting revenue and earnings, more expensive stocks may outperform, some investors said.

"I'm confident that the disparity between growth and value has pretty much played itself out," said Ken Corba, chief investment officer at Pimco Equity Advisors and manager of the US$1.37 billion Pimco Growth Fund.

Growth funds -- with US$663 billion of the US$2.26 trillion in diversified domestic stock funds -- fared the worst this quarter as computer-related and telecommunications companies slid.

The average growth fund lost 3.2 percent while the average value fund gained 5.1 percent during the first quarter. Pimco Growth lost 0.5 percent by holding relatively few technology shares and emphasizing retailers like Target Corp and Wal-Mart Stores Inc.

"Tech has been a land mine for growth managers," Corba said.

Among the 25 largest funds, the best performer in the quarter, the US$22 billion Vanguard Windsor II Fund, had 3.2 percent of its assets in technology shares at the start of the year, according to Vanguard's Web site. The worst, the US$20.6 billion Fidelity Growth Company Fund, had 33 percent of its assets in technology.

Vanguard Windsor II gained 4 percent through Wednesday while Fidelity Growth Company lost 7 percent. The average technology fund lost 9 percent.

Telecommunications shares in particular hurt growth funds and funds dedicated to the sector, with US$3.2 billion of assets, which lost 20 percent on average.

Heightened scrutiny of companies' finances, triggered by Enron Corp's collapse, drove losses in Global Crossing Ltd, WorldCom Inc and Qwest Communications International Inc. They "were expanding their revenue on a suspect basis" by swapping network capacity, said Dean Kartsonas, manager of the US$231 million Federated Communications Technology Fund.

Bankruptcy filings by Global Crossing and McLeodUSA Inc.

further hurt telecommunications shares, as did slowing wireless subscription growth at Sprint Corp (PCS Group), AT&T Wireless Services Inc and Nextel Communications Inc, Kartsonas said.

Federated Communications Technology lost 4.8 percent by avoiding wireless providers, Kartsonas said, adding that he remains pessimistic on the sector. "It's hard to see anything turning it around in the near term," he said.

Among diversified domestic stock funds, small-company value funds, with US$66 billion of assets, fared best, gaining 7.4 percent on average. Small-company stocks benefited from concerns, stoked by Enron's collapse, that large companies with complicated financial statements may be overstating earnings.

Small companies "tend to have simpler businesses and simpler accounting and financial statements," said Jerry Campbell, co-manager of the US$143 million Numeric Small Cap Value Fund. "Those characteristics are particularly in favor in the present market."

Mutual funds' clients are adding putting more money into stocks after two years of decline. Vanguard Group, the second-biggest mutual fund group, said earlier this week sales of stock mutual funds rose to their highest in almost three years. The company expects US$3.8 billion of stock fund sales in March, its strongest month since April 1999.

Emerging market stock funds, with US$34 billion of assets, gained 12 percent.
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