Natural resources funds, many of which are heavily invested in energy stocks, have ridden the rising price of oil to returns of over 37 percent in the past year, through the first quarter of 2005. Consequently, these funds have enjoyed huge inflows recently. In February, investors put over $2 billion into such funds: that was 11.5 percent of the money in the entire category, at the beginning of the month.
Such an inflow exceeded the “relative-flows peak” of technology stocks in the 1990s. For inflows, the best month for technology funds was November 1999, when inflows were 11.2 percent of the money previously in that category. That was shortly before the bubble burst. Although a similar crash in natural resources is unlikely because energy companies have real oil and pay real dividends, investors should not put most of their money into such stocks and funds.
Meanwhile, technology funds have recorded months of outflows, with the year-to-date total exceeding $2 billion. Investors looking to buy stocks that are out of favor might consider a modest allocation to tech funds.