iTurf mentioned by Munder Fund:
New York Times -- Sunday, June 20, 1999
By RICHARD A. OPPEL Jr.
Managers of Internet mutual funds can thank people like Lynette Kunz for making life a little easier. Investors are likely to stick with their holdings in Internet funds, said Lawrence York, a portfolio
manager. While Internet stocks, and the funds that invest in them, have plunged in the last two months, fund investors have not fled -- as so often happens when a sector is slammed so quickly. Instead, like
Ms. Kunz, who bought about $7,000 worth of the Internet Fund near the sector's recent peak and is down about 10 percent, many Internet fund holders have ridden out the downdraft so far.
Ms. Kunz, of Shoreline, Wash., is not planning to bail out. "I thought I'd give them a good run and see what it was like after a year," she said. She thinks the stocks will come back later this year, whenconsumer technology spending picks up with back-to-school and Christmas shopping. Most of her money is in other funds and Microsoft stock, with some "play money" in penny stocks, she added. "I'm pretty diversified."
While Internet funds rebounded last week, rising more than 10 percent since Tuesday, they remain down sharply from highs in early April. But more money is still flowing into Internet funds than has been
flowing out, according to the latest data. About $25 million of new money piled into Internet funds in the week ended Wednesday, the lowest level this quarter, but still surprisingly high, given that almost everyone who has put money into an Internet fund since early April holds the position at a loss.
The resilience of such investors has made a tough spot tolerable for managers of Internet funds, who have not had to sell into a down market to meet redemptions. Until investors "see a real blowup in the
economy, I think they're going to stay hard and fast," said Lawrence York, lead portfolio manager of the WWW Internet fund. Still, even managers of Internet funds caution that the recent volatility shows why no one should put much money into their funds. Maybe 10 to 15 percent for an aggressive investor, said Paul Cook, manager of the Munder Netnet fund, the largest Internet fund, with about $2 billion in assets. Ms. Kunz's manager, Ryan Jacob, stock-picker for the $654.2 million Internet Fund, added, "We should be a small part of someone's investment portfolio."
The short-term outlook for the sector raises some concerns. A. Michael Lipper, chairman of Lipper Inc., a Summit, N.J., research firm, warns that with the scores of recent Internet initial public offerings, Internet fund shareholders could face tough times -- a situation reminiscent of when funds investing in real estate investment trusts became popular. "Initially there was demand and very little supply," Lipper said. "Then the Street created a lot of supply that overwhelmed demand, and this is what I think is happening here."
Managers of Internet funds are more optimistic. But they do have decidedly different ideas about what stocks will do best. York splits his portfolio between mature companies, midsize concerns and riskier,
smaller ventures -- one reason that as of last Thursday, he said, his fund was down only 16.2 percent from April 13. It also helps the portfolio's liquidity to have a lot invested in larger companies, since trying to buy or sell even a few hundred shares of some smaller Internet stocks can cause the brokerage firms that make markets in such stocks to adjust their prices.
He likes stocks like Verisign and Open Market, which sell equipment to E-commerce concerns; companies that provide the pipe through which Internet traffic flows, like the cable operator Time Warner, and companies benefiting from use of the Internet for financial transactions, like Checkfree Holdings and Security First Technologies.
To Cook of Munder, much of the Internet sector was due for a correction. "The pure plays had such a tremendous fourth quarter, they had just gotten extended and were trading away from realistic
valuations," he said. His favorites include E-commerce stocks like Beyond.com and iTurf, which among other things sell software and apparel, respectively; companies providing broadband Internet access, like At Home, and those selling Internet equipment to businesses, like Cisco Systems.
The manager of the Monument Internet fund, Alexander Cheung, attributes last week's spike in Internet stocks not only to the low-inflation news on Wednesday but also to short-covering by investors who had borrowed shares recently and sold them short, hoping the down trend would go on. He is not too fond of E-commerce stocks, preferring the Internet advertising firm Doubleclick, the audio-video software company Realnetworks, the Internet access provider Psinet and Cisco. E-commerce stocks may be grabbing headlines, Cheung said, but "we put a little bit more emphasis on infrastructure, access, service providers and enabling technology companies."
Jacob, meanwhile, sees better value in beaten-down, less established companies including About.com, which operates Web sites, and Theglobe.com, which provides online services to develop Internet
content. Like the other Internet managers, he attributes a large part of the recent slump -- and last week's bounce -- to the interest rate outlook. But other factors have hurt, such as service failures at Ebay, the on-line auctioneer.
"We're used to volatility within this sector," Jacob said, "but even a week like this can be tough to take."
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