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Equity Funds Reap Benefits of War Victory

Equity mutual fund inflows in April hit their highest level in a year as investors cheered a swift military campaign in Iraq and a broad-based rally in stocks.

Investors added an estimated $14 billion to equity funds last month, according to Denver-based fund tracking firm Lipper. That represents the largest monthly inflow since the nearly $15 billion they accrued in April 2002. As a result of the latest influx of cash, equity fund flows for 2003 have now crossed into positive territory.

"There was a relief rally in stocks, which extended to seven weeks by the end of April, and fund investors took some courage from that," said Don Cassidy, senior research analyst at Lipper. "We will see how much sticking power these inflows have when the rally eventually cools and we have a sideways or down month in prices."

The good fortune was spread across the entire cluster of equity funds although it was more of a result of declining redemptions than frenzied buying, Lipper said. Despite April's 8.5% gain in the S&P 500, Lipper cautions against being overly optimistic about stocks, characterizing the shift in investor moods as a "one-time factor."

U.S. diversified equity funds ranked first in net inflows totaling $6.8 billion, reversing a slight outflow in March. Large-cap funds, in particular, added $500 million, marking their first gain since March 2002 and only the third time in 27 months the group has recorded an inflow.

Mixed equity funds remained an attractive choice among investors, tacking on $4.2 billion, up from $2.3 billion in March. Within that group, income funds led the pack, taking in $2 billion, or 3% of prior month total assets.

World equity funds took third place, amassing roughly $1.9 billion on the strength of international fund performance.

Funds tracking the S&P 500 index matched their March inflow by taking in $600 million in April. Individual sector funds amassed $500 million, marking their first inflow since March 2002 and only their third time in positive territory in the last 22 months. Real-estate funds were the driving force behind their performance, capturing 70% of overall assets. Beleaguered utility funds bled another $100 million along with natural resources funds.

As for fixed-income, bond funds remained strong, taking in a total of $9 billion, although that was down from the $11 billion they recorded the previous month. Short- and intermediate-term bond funds took in $2.7 billion. Meanwhile, long-term bond funds made up the bulk of the total sum, ringing up $6.3 billion.

Municipal funds gave up $1.1 billion across the whole maturity spectrum as continued anxiety over the fiscal woes of states and localities dissuaded investors from putting cash to work.

Bringing up the rear for April fund flows were money market funds, which weathered a whopping $55 billion in outflows, matching their year-ago mark. A large number of redemptions is to be expected, however, given that April is a significant tax-paying month for both individual investors and corporations.

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