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New fund winners in 1Q
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April 3, 2000: 12:08 p.m. ET
Tech, health, small- and mid-cap growth post sizeable gains; metals tarnished
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NEW YORK (CNNfn) - Technology and health mutual funds were the best places to make money in the first quarter, while funds focused on precious metals, Asia and bonds took a bite out of investors' portfolios.
Technology funds rose an average of 18.43 percent, while health funds were up 18.20 percent, according to fund-tracker Morningstar.
Other category winners in the quarter included: mid-cap growth funds, up 17.17 percent; small-cap growth funds, up 15.79 percent; and communication funds, up 10.78 percent.
 The laggards, led by precious metal funds -- which fell an average of 14.64 percent -- included: Japan stock funds, down by 2.51 percent; and large-cap value funds, up a mere 0.3 percent, Morningstar said.
Among other fund categories, small-cap blend rose 9.34 percent; Europe stock gained 7.8 percent; utilities funds were up 7.07 percent; and world stock climbed 4.96 percent.
For bond funds, the picture was mixed. Municipal bonds rose 2.27 percent, but taxable bonds were up only 0.91 percent.
Kudos for active management
Overall, U.S. stock funds handily beat out the S&P 500 Index, which rose 2.19 percent in the first quarter. U.S. diversified equity funds were up 6.8 percent; domestic equity funds rose 6.55 percent; and international equity funds climbed 2.62 percent, Morningstar said.
"The first quarter has gone a long way to support active management," said Louis Harvey, president of mutual fund research firm Dalbar Inc. "People felt imprisoned in an index product in a volatile market."
The first quarter also was marked by strong cash flow into stock funds. In February, net new cash flow was a record $53.55 billion, up from a record $40.91 billion in January, according to the Investment Company Institute.
Frontier, Deutsche big winners
Among individual funds, Frontier Equity Small Cap Growth far outperformed its competitors in the U.S. diversified stock and domestic equities categories, with a gain of 105.42 percent.
Deutsche European Equity Fund, meanwhile, took top honors on the international equities front, rising 105.41 percent.
Losers were led by the large-blend stock and bond fund ProFunds UltraShort OTC, which fell 39.84 percent. International precious metals fund Midas, meanwhile, dove 23.53 percent.
Will hunger for techs be sated?
Experts say the strong first-quarter performance by tech funds was as much the result of investors chasing performance as making rational investment decisions.
 "People see triple-digit returns and their eyes light up," said Morningstar analyst Russ Kinnel. "It's easier to be rational when you're comparing 10 percent and 12 percent returns."
If the wild dips in tech stocks continue long-term - the tech-heavy Nasdaq has lost about 15 percent in the past week alone and on Monday afternoon was down almost 8 percent -- that may dampen enthusiasm somewhat, but just how much so is unclear.
Mutual fund analyst Burt Greenwald doesn't see the lust for technology issues dying anytime soon, but said if the erosion in the sector continues unabated, investors may have a change of heart. Then again, he added, "the public has a short-term memory."
Long-term, Harvey doesn't think the level of growth in tech funds is sustainable, and said the three- to five-year horizon probably will not look as bright as it has over the past year or two.
Value in value
In light of market volatility and a renewed enthusiasm for "old-economy" stocks, some analysts are anticipating a resurgence in value funds, whose first-quarter performance was lackluster compared with their growth cousins.
Small-cap value, up 4.5 percent, turned in the category's best performance, well above the large-caps and better than the 2.05 percent gain in mid-cap value funds.
 Where they distinguished themselves, some value funds ranked near the bottom among individual fund performances. The large-value Rydex Basic Materials, for instance, posted a first-quarter loss of 16.28 percent, the fourth-worst return among U.S. diversified funds. Meanwhile, the mid-cap Phoenix Engemann Value 25, down 12.58 percent, and Icon Basic Materials, lower by 12.19 percent, took the number 8 and 9 spots among worst-performing domestic equity funds.
But that doesn't mean you should shun the category. To the contrary, Kinnel said, "Stay diversified," adding that historically value stocks tend to do better than growth.
Indeed, Harvey said, value funds are currently "grossly undervalued," having lost much of investors' attention to "new-economy" stocks over the past few years.
The recent downturn in the Nasdaq has been good news for value investors. It's too early to tell if the uptick in value funds over the past two weeks is the beginning of a sea change in the market, Greenwald said, but the category may benefit from momentum investing once investors see net asset values on the rise. 
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