>>Nice way to end the summer!
As I recall, isn't September historically the worst month for equities?
Dow Jones Newswires -- September 3, 1999
DJ TIP SHEET:Monument Internet Manager Takes Long-Term View
By Dinah Wisenberg Brin
PHILADELPHIA (Dow Jones)--Two months shy of its first birthday, the Monument Funds Group's Internet Fund shows an apparent knack for the volatile market to which it is dedicated.
It has given investors a roughly 90% return year-to-date, more than twice the average for science and technology funds, and a nearly 152% return since its inception in November, about double the average, according to recent Lipper Co. data.
Its year-to-date return as of last week was more than twice that of TheStreet.com Internet index, and surpassed those of its three rival funds.
Alexander C. Cheung, senior portfolio manager for the Bethesda, Md., funds group, oversees the Internet fund and two other Monument portfolios, Medical Sciences and Washington Aggressive Growth, also strong performers.
"We are both top down and bottom up," Cheung told Dow Jones Newswires. "Top down means that we are going through industries, segments, regions, to try to find the five or 10 fastest-growing regions or segments.
"And then bottom up means that once we decided which segments would grow better than the other, we then try to find who is the best in those segments."
Monument considers three main criteria - management, resources and marketing position - in picking stocks, Cheung said.
"Time and again the management is the one critical factor that defines the vision of the company and the direction of the company," he said. "However, without the resources to support that, it's tough." Those resources include both money and intellectual capital.
For marketing position, Monument looks at a company's competitive position and its research and development pipeline.
Monument has a long time horizon, looking to see where the Internet economy will be in three to five years and beyond, Cheung said.
"You have to be very careful, and the best approach is a portfolio approach. You buy a basket of them, some big ones, some small ones and some medium-size ones," he said.
Fund Mgr Sees Variety in 'Emerging Internet Economy'
Many people look at the Internet as a subset of the technology sector, but that's an arbitrary and improper framework, Cheung said. "What we're looking at is an emerging Internet economy" that encompasses many sectors beyond technology, he added.
In the next three to five years, the Internet will continue its build-up phase, so infrastructure companies such as Cisco Systems Inc. (CSCO), which makes router and switching equipment for computer networks, and Broadcom Corp. (BRCM), whose chips are used in modems and networking equipment, should be important money-makers, Cheung said.
"Enabling technologies" companies such as VeriSign Inc. (VRSN), which provides security software, and RealNetworks Inc. (RNWK), which develops and sells streaming video and audio, also are favorites for Cheung.
He also likes Internet professional services companies such as USWeb Corp. (USWB), a professional services firm, X-Ceed Inc. (XCED), a marketing and communications company, and DoubleClick Inc. (DCLK), an Internet-advertising software company.
Then there are the Internet or online service providers and other companies that help people gain access to the Web, such as Internet service provider Mindspring Enterprises Inc. (MSPG), which Cheung recently added to the Internet Fund portfolio, and PSINet Inc. (PSIX), an ISP that offers Web-hosting, security and electronic-commerce services.
"The next three to five years, companies that are providing the capabilities for people to get connected to the Internet would have a higher relative importance, because this will be the period that more and more people are trying to gain that capability and that means they are going to save some money." Cheung said.
He expects a wave of Internet service provider consolidations in the coming years, noting the thousands of ISPs in the U.S. alone.
With a "relatively small" estimated 150 million Internet users world-wide, there's much room to grow, he said.
"Over time, as the Internet becomes more developed, electronic commerce (buying and selling goods and services over the Internet) will become more important," he said. "We will achieve a certain critical mass and electronic commerce should do very well."
In the next two or three years, Cheung said, business-to-business e-commerce enterprises such as VerticalNet Inc. (VERT) and Commerce One Inc. (CMRC) should do well. In choosing e-commerce companies, Cheung looks at the user base, amount of repeat business and the number of purchases per user per year.
"E-commerce as a segment is less than 10% of our portfolio, but over time we should expect that percentage to increase," he said. "We don't know how fast, we don't know how big it will become."
About 21% of Monument Internet Fund is invested in enabling technologies, 13% in infrastructure companies, 12% in Internet professional services companies, 16% in Internet access providers (slightly more than the fund's target) and 10% in e-commerce, Cheung said. The fund has grown from 20 to more than 50 stocks.
The Monument Medical Sciences Fund, launched this spring to replace an earlier, more regional version, seeks to build positions in "premier" companies and accumulate emerging businesses, usually those in late clinical trials or that already have regulatory approval for their products.
"We are really right now at the cusp of a revolution in medicine," Cheung told reporters in a teleconference this week. Such companies should bring "an extraordinary return" in the next five to 10 years, he said. Cheung said 136 drugs await U.S. Food and Drug Administration approval.
He cited the aging population and increased longevity, an associated likely increase in incidents of disease, and expected developments such as the growing of human organs. Cheung expects to see a steady increase in biotech companies going public in the next three to five years.
Among his favorite medical sciences stocks, Cheung told Dow Jones Newswires, are Human Genome Sciences (HGSI), BioMarin Pharmaceuticals Inc. (BMRN), Affymetrix Inc. (AFFX), MedImmune Inc. (MEDI), and Chiron Corp. (CHIR).
His top picks in the Washington Aggressive Growth Fund, which focuses on emerging companies in greater Washington, D.C., include USInternetworking Inc. (USIX), Winstar Communications Inc. (WCII), CAIS Internet Inc. (CAIS), Ciena Corp. (CIEN), Metricom Inc. (MCOM) and Proxicom Inc. (PXCM).
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