Investors hang up on telecom funds amid bloodletting
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By Svea Herbst-Bayliss
NEW YORK, June 22 (Reuters) - Telecommunications funds, the
market's darlings of the late 1990s, have been badly battered
in the sector's downturn. And now it is just a matter of time
before some will shutter, following in the footsteps of some of
the companies they invested in, analysts say.
Many telecom stock pickers are reshuffling their portfolios
to minimize the year's growing losses, which in some cases
already top 50 percent. But even a shift to more defensive
media and cable company stocks from communications equipment
and service companies has been futile as managers find there
are not enough good stocks to keep the red ink at bay.
Investors are frustrated too. They've stepped up
withdrawals from these specialty funds this year. This means
the death knell may soon sound for some of industry's worst
performers, experts say.
"Managers are dealing with a basket-case situation here,"
said Tim Schlindwein, who runs the mutual fund consultant group
Schlindwein Associates. "We have more product than is needed
and because these funds were part of a fad where people used
them inappropriately by overweighing them, I assume there is a
bias to walking away from such funds that could accelerate."
Unwilling to wait for better news, investors removed $550
million in assets from telecommunications funds in the first
five months of 2001, more than double the amount they pulled in
the second half of 2000, fund tracker Lipper Inc. said.
At the end of May, Lipper said, telecom funds had $6.4
billion in assets. That's down 56 percent from $14.6 billion in
March 2000, when the Nasdaq Composite index <.IXIC> and many
telecom stocks hit record highs.
"I haven't heard which funds may be close to that point,
but if the performance remains unfortunate for a long period of
time and funds are small then it may be the best thing to give
them a decent burial, either by closing them or merging them
into some other fund," Lipper analyst Don Cassidy said.
LIFESAVING MEASURES FAIL
Even the Federal Reserve's five half-point interest rate
cuts aimed at increasing the nation's anemic 1.3 percent growth
rate failed to offer immediate help to the ailing sector.
The industry's biggest names -- telecom equipment giant
Lucent Technologies Inc. and handset maker Nokia Corp.
-- are still grappling with losses amid
sluggish business and consumer spending. And owning just one of
these stocks was the kiss of death for many managers.
There have been other disasters too, and together they
pushed telecom funds down 27.10 percent since January to rank
the group right behind Science & Technology funds, down 29.28
percent, as the year's biggest losers, Lipper data show.
By comparison, the average U.S. diversified equity fund is
down only 7.09 percent. During their heyday in 1999, telecom
funds soared 68.25 percent.
For example, Exodus Communications Inc.'s stock
collapsed over 71 percent in the last month as it faces a cash
crunch amid weak demand for its Web hosting services. The stock
of Global Crossing Ltd. , which operates transoceanic
fiber-optic networks, hit a new-52 week low this week.
Federated Investors Inc.'s Federated Communications
Technology fund, down 37 percent for the year, dumped Exodus
when the going got rough, but INVESCO Telecommunications Inv,
down 40 percent since January, still owned Global Crossings
when it last published its holdings.
BEST CAN'T DUCK LOSSES
These days even the best managers, who jumped into media
stocks to staunch the bloodletting, are feeling the pain.
"The bright spots have been few and far between in this
sector, where a slowdown in the economy has reduced spending on
communications gear which has virtually crippled the equipment
makers and forced a number of companies to implode," said Bill
Harding, an analyst at fund tracker Morningstar Inc.
This how bad it is: This year's winner so far is Rob
Gensler, who manages T. Rowe Price's Media & Telecom fund and
drew rave reviews for losing just 8 percent. The fund, which
owns rural wireless service operator Western Wireless Corp.
and WorldCom Inc. , rotated its stocks and
increased its cash position.
"I added to media names, radio and cable and later played
in long distance names while being exceedingly price sensitive
and buying a name at $16 to sell it at $24 only to buy it back
at $18 all within the span of three days," he says, declining
to give names for his picks.
Gabelli Asset Management Inc.'s Gabelli Global
Telecommunications fund, lost 12.6 percent this year. That put
it as the third-best performer because large stakes in phone
companies like Verizon Communications Inc. minimized the
damage.
On the other hand, funds like Firsthand Capital
Management's Communications fund are faring far worse. The
once-hot fund, which owns equipment maker Ciena Corp.
and specialty microchip maker Vitesse Semiconductor Corp.
, is down nearly 55 percent this year,
With few sure signs for a recovery, "the next logical step
would be for some funds to fold," just like some Internet funds
that shut down amid the dot-com implosion, Morningstar's
Harding said.
REUTERS
Rtr 12:00 06-22-01 |
