Tech Fund Declines Fail to Send Investors for the Exits.

THIS is getting brutal.

I'm talking about the mounting losses suffered by investors in "technology" and other aggressive mutual funds since the stock market's Internet bubble blew out.

Among 364 high-tech funds tracked by Bloomberg that specialize in computer and telecommunications stocks, the average loss from the end of February 2000 to the same point in 2001 was 54 percent.

Since that matches the percentage drop in the Nasdaq Composite Index over the same stretch, you could say these funds are only suffering the same fate as everybody else who got caught up in the tech frenzy. Funny thing, though, in this kind of market, people don't seem as interested in index comparisons as they used to be.

For the last 12 months, the average "aggressive growth" fund lost 17 percent. In the once high-flying Janus Funds group, the average decline among the firm's 28 stock funds of all types was 33 percent.

So imagine my surprise when I went looking on the Internet for the cries of pain and bitter recriminations you might expect in such a situation. Instead, I found fund investors calmly counseling each other to be patient and stick with their long-term investing plans.

Hanging in

"Do not lose hope," said one typical posting on the "Janus Junction" discussion board at the independent research firm Morningstar Inc.'s Web site (morningstar.com). "I am down big-time since getting in, but I have been dollar cost averaging for the past six weeks."

As most long-term investors know, dollar cost averaging is a strategy that stresses putting equal amounts into funds at regular intervals, taking advantage of the fact that each dollar buys more shares at lower prices.

"Am in the same boat," said another message. "I would just ride it out and add small amounts every month. I started in June and have lost, but am keeping the faith."

Plainly, such views aren't unanimous. Janus has experienced monthly outflows since last fall as at least a few holders have cashed out.

Stilwell Financial Inc., Janus Capital Corp.'s parent company, reported recently that its assets under management plunged about 16 Percent in February, attributing most of the drop to its stock funds. Janus stock funds in the month declined an average of 14.8 percent.

With performance numbers like this hitting them in the face, investors are putting on an impressive display of staying power. Wisdom too, let us hope.

Big questions

The questions such reassurances don't answer are what will remain when this cycle has run its course, and what kind of recovery might come next. Janus, which has been in business for four decades, has adapted successfully to changing market conditions before. Even after the battering they took over the past year, Janus stock funds still boast an average annual return of 15 percent for the last three years and 18 percent for the last five.

The firm needs those adapting skills again now. Presuming that the next market advance will be quite different in character from the last -- they always are -- so will most other managers of technology and aggressive growth stock funds.

At the Firsthand Funds group, headed by tech-stock specialist Kevin Landis, the five funds in operation for at least a year showed an average 12-month loss of 65 percent through February. So when Landis appeared at a recent investment conference, it was only natural that he be asked not just when, but whether, "technology" would come back into favor.

"If you define technology as cool new stuff, that always leads," he said. "Our job is to give you the right exposure to technology, so that when technology does well, you will."

Chet Currier is a columnist for Bloomberg News.

Efficient Markets Prove Hard to Outsmart 

Though you'd never know it from what many financial sophisticates say, trying to beat the stock market is a noble endeavor.

Go ahead, laugh. What could possibly be noble about flying, by cunning and calculation, to outdo your fellow human beings in pursuit of money-management riches? Seems as though index-fund investing, in which you aim simply to match the performance of a market benchmark, is the high-class way to go.

Let's look a little closer at the roles played by "active" and "passive" investors in the markets.

The premise behind index funds, which account for roughly $1 of every $10 in stock mutual funds, is that the stock market is efficient, with present prices already reflecting everything that can be known or suspected.

Since index funds can operate at lower cost than the average managed fund, spending no money to choose what to buy and sell, they have a natural edge on the average managed fund.

Fine. But who, pray tell, makes the market efficient in the first place? Nobody but those active managers, beating their brains out trying to outdo the competition. The harder they work, the more efficient the market gets, and the more difficult it becomes for anyone to win the game.

I think a sense of this explains why many investors, I among them, feel a natural sympathy toward active managers in the eternal active-vs.-passive argument. I confess to cheering a small, involuntary cheer when the index funds have a relatively bad year, as they did in 2000.

Even after one identifies active managers as under-appreciated doers of good works, the question remains whether it is wise to join forces with diem.

The typical professional in active management, after all, is paid handsomely to do the dirty work. You and I, as investors in mutual funds or brokerage-house clients, stand to receive no such compensation. Over the last five years, Total Stock Market Index beat 84 percent of the competition.

So it isn't ignoble to go the index-fund route, if that is what your head teels you. Or you can split your allegiance between both sides without branding yourself as wishy-washy.

One blended strategy is to use index funds for the areas of the markets presumed to be the most efficient and managed funds for other areas such as small stocks and high-yield bonds. The choice is yours.

However you proceed, keep a kind thought for managed funds that struggle to beat the averages. By doing the work necessary to make the markets relatively efficient, they may contribute to your well being even if you don't give them your money.

Chet Currier