After a surge in mutual fund assets under management during the first quarter, large banking and thrift companies are preparing for a sluggish summer.

Analysts and bankers attributed the year's strong start to the ripple effect of a prosperous 1999 that has carried over as investors loaded up on individual retirement account investments in anticipation of the tax deadline. (See tables on pages 10 and 11.)

But "I think we are getting set for a down in cash inflows into mutual funds," said Dennis Dolego, director of research at Optima Group Inc. in Fairfield, Conn.

"Mutual funds are less sensitive [than individual stocks] in a tough market, but a drop in the markets has a tendency to get people's attention," he said, "particularly this new crowd of investors who came in at the end of 1999 and didn't enjoy last year's run."

Data from Lipper Inc. show mutual fund assets under management by the 98 banking and thrift companies that market funds grew 5.7% during the first quarter, to $1.189 trillion.

Among the top 25 banking companies in mutual fund assets, only two, First Union Corp. of Charlotte, N.C., and National City Corp. of Cleveland had net declines in assets during the quarter. The 25 largest banking companies manage 87.7% of fund assets managed by banking companies, according to Lipper's quarterly data.

April was another fruitful month for some mutual funds, according to Financial Research Corp. of Boston.

It reported the best net sales month ever for domestic equity funds, though much of that was attributed to last-minute IRA funding.

Value funds also showed signs of slowing their hemorrhage, with the outflow slowing to $4 billion in April, as opposed to $14.2 billion in March and $45.2 billion for the first three months of the year. Net inflows into stock mutual funds overall increased by $4.8 billion in April, to $26.5 billion, said the firm.

But another survey, released Wednesday, indicated that the market already was softening in April. The Investment Company Institute said combined mutual fund assets dropped $190.8 billion - or 3.6% - to just over $7 trillion dollars in the month.

The biggest declines were in stock funds, down 4.3%, and tax-free money market funds, down 5.6%. Banking companies that increased assets under management during the first quarter are aware that a slow summer is a strong possibility.

Sharon Weinberg, a vice president in the mutual funds group at New York's J.P. Morgan & Co., said it is counting on diversity in its product line to carry it through a slow period.

The company's assets under management grew 20.3% during the first quarter, to $33.56 billion, Lipper said. "The nice thing about J.P. Morgan is that we have been around for a long time and we have a long perspective on these things," Ms. Weinberg said. "We will continue to do what we believe in and continue to do what is right for investors. With a very broad product line, regardless of what happens, we always have a suitable fund. We are well positioned regardless of what happens."

The recent surge in overall sales also obscures the fact that a handful of funds are getting the vast majority of cash inflows, said R. Gregory Knopf, managing director at HighMark Mutual Funds. He said most of the 1999 inflow went to the top 10 firms.

"You'll still see net redemptions" in retail funds for the near future, Mr. Knopf said. Funds and distributors that focus exclusively on retail sales are likely to suffer, but diversified firms that offer retirement and money market funds are best suited to prosper in a slump, he said.

The combination of jittery investors and rate increases by the Federal Reserve will hurt fund sales - leading to downturns in the next few months - but the trend is probably temporary, said Steve Gibson, chief executive officer of Liberty Funds.

The market for funds is still being boosted by the fact that baby boomers are in their peak earning years and are still accumulating liquid capital, Mr. Gibson said.

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