Mutual funds that invest in technology stocks were hit with $510 million in net redemptions for the week ended Dec. 13, bringing the total outflow to $1.1 billion for the past four weeks, according to California-based mutual fund research company AMG Data Services.
The net outflow represents the difference between the amount of money being invested in mutual funds and the amount being withdrawn.
Investors often cash in some of their holdings at the end of the year in anticipation of receiving a capital gains distribution--a strategy taken to reduce their tax obligations. But Tom McManus, a market strategist for Banc of America Securities, said it is unclear to what degree this has played a role in the recent trend, compared with investors simply bailing out of tech stocks.
Meanwhile, additional sales could be on the horizon.
"We may be looking at further redemptions from tech stocks early next year," McManus said in an interview. "Massive amounts of money went into tech funds earlier this year, and some of that was taken out because investors were disappointed with those funds."
Despite the net outflow, portfolio managers may not have have reached a point where they are forced to sell holdings to cover redemptions, which would exacerbate the decline in tech shares, said Phil Dow, a market strategist for Dain Rauscher Wessels.
The level of cash that mutual funds are sitting on reached 6 percent of assets in November, up from 5.5 percent in October, Dow said. And although the increase is a mere half a point, it's a sizable stash of cash when you consider tech mutual funds manage nearly $77 billion in assets, according to AMG's most recent figures.
The stash represents money that portfolio managers can draw on before selling stocks to raise funds. However, it also represents money that is not being plowed back into the market.
"If this (net outflow) continues for another two months, we may start to see managers selling stock to pay redemptions," Dow said.
January usually marks a time when money begins to flow into funds, but if it fails to materialize and the markets continue their downward slide, money managers may be prompted to sell stock, he added.
Meanwhile, McManus noted it's too early to determine whether widespread fear has hit technology mutual fund investors.
"Given the recent sharp rally (last week) for the Nasdaq and tech stocks, one might be tempted to suggest that even minor redemptions signal an abundance of concern about market risk," McManus noted in a report. "But our view is that last winter's technology fund inflows were so large as to require much more substantial net redemptions than we have experienced thus far, before one can claim fear is rife."