Yet another recommendation in the press. (Not an analyst)
cbs.marketwatch.com
DRIV is listed amongst EBAY, AMZN, and ATHM. Best to access the URL.
New economy? Buy Internet stocks, not funds
Internet funds are ignored, while Internet stocks sizzle
By Dr. Paul B. Farrell, CBS MarketWatch
Last Update: 4:23 PM ET Jan 6, 1999
LOS ANGELES (CBS.MW) -- Let's go over this one more time: I think
an Internet fund is a dumb idea. So do most investors. That's why the
market's ignoring them. Investors love Internet stocks, not Internet funds.
Besides, there's no such animal as an Internet fund; they're just tech sector
funds in disguise. And there are but four small funds in the so-called
Internet fund sector:
INTERNET FUNDS
Ticker
Inception
Net assets
1-year
return
Munder NetNet
(MNNAX)
8/19/96
$81 million
100%
The Internet Fund
(WWWFX)
10/21/96
$5 million
202%
WWW Internet
(WWIFX)
8/01/96
N/A
70%
Monument Internet
N/A
11/16/98
N/A
N/A
Yet, in spite of the fact that the Internet is clearly the single biggest
historical event since Gutenberg IPOed his low-tech communications
company in 1452, this is all we have: four measly Internet funds. And the
oldest one, Munder NetNet, has attracted less than $100 million in net
assets since mid-1996. Logically, you'd expect more, right? After all,
Munder manages $46 billion in 29 funds, so you know this is a savvy
asset-management team in the game.
Fidelity says 'no' to Net funds
And why isn't Fidelity Investments, the $582 billion giant with 254
proprietary funds, up with an Internet fund? I called and asked the Fidelity
people about their plans for one. Answer: They have none.
Heck, if any fund family should start an Internet fund, Fidelity's the logical
choice. It's the leader in the sector-fund field, with $16 billion in 38 sector
funds backed by a large research team. Yet it has no plans for an Internet
sector fund, because it's too small a sector -- and, I believe, too new, too
risky, too dull and too-low returns (compared with Net stocks
themselves).
The reality is that Internet stock traders and Internet fund investors have
opposite goals. If you really want to make a short-term killing on an
Internet play, you'll go with Internet stocks, not funds. On the other hand,
the primary purpose of a fund is long-term investing. That's why the
market is ignoring Internet funds and buying Internet stocks. After all, the
returns of Internet stocks are far superior to those of the Internet funds.
Internet stock picks from new research tools
In fact, there are two new Internet magazines focusing solely on the
business side of the Internet market that, in my opinion, are must buys if
you're an Internet stock trader:
· The Industry Standard: Newsmagazine of the Internet Economy
· Business 2.0: New Economy -- New Rules -- New Leaders
My strong recommend is that you subscribe to both. And I especially urge
that all you Internet traders get a copy of the November 1998 issue of
Business 2.0. It includes an article titled "What's It Worth?" in which
"leading analysts reveal how you can make sense of the insane market in
Internet stocks." The magazine lays out a step-by-step plan for putting a
value on an Internet stock, and it also highlights specific stock picks,
dividing them between portal sites and e-commerce sites, to which I've
added a few other obvious choices (and invite you to e-mail us with your
favorites):
INTERNET
PORTAL STOCKS
Ticker
INTERNET
COMMERCE STOCKS
Ticker
America Online
*
(AOL)
Amazon
(AMZN)
CNET
(CNWK)
AtHome *
(ATHM)
eBay *
(EBAY)
CDnow
(CDNW)
Excite
(XCIT)
Digital River
(DRIV)
GeoCities
(GCTY)
eBay
(EBAY)
InfoSeek
(SEEK)
Intuit *
(INTU)
Lycos
(LCOS)
Onsale
(ONSL)
Sportsline
(SPLN)
Peapod
(PPOD)
Yahoo!
(YHOO)
Preview Travel
(PTVL)
INTERNET DISCOUNT
BROKERS
Ameritrade
(AMTD)
E-Trade
(EGRP)
Schwab*
(SCH)
* Internet stocks from sources other than
Business 2.0 list
And here's a sketch outline of what Business 2.0 says "among analysts
who track Net stocks [is] a growing consensus on what approach to use"
in valuing a Net stock:
· Understand the potential ... long-term earnings
· Dissect the business model ... sales margin, cost of sales
· Zoom in on the margin ... worry if gross margin is thin
· Track the growth ... users, services, new technologies
· Focus on market share ... follow the market leaders
· Follow the revenues ... analysts say "show me the money"
· Watch the customer base ... market cap per customer
· Monitor the traffic ...eyeballs, sales or trades
· Assess the leadership ... are you confident of the team?
· Look at the big picture ... company's strategic market
· And finally ... be careful, Internet business is risky business
You are strongly encouraged to get a print copy of this article, since it's
not free on the magazine's Web site. Buy it. Study it. Especially check out
the directory of Web sites for new-economy executives.
Business 2.0's final word of caution bears repeating: Remember, someday
very soon, Internet companies will start posting earnings, and the ball
game will change. Then analysts will start evaluating these "new economy"
stocks much like any other stocks, and many of these high fliers will look
wildly expensive and could come crashing down. Be really careful!
Just this once, forget funds
So let me make absolutely clear why Internet funds make no sense. And I
am reiterating this because this is an important distinction, not only in
analyzing the lack of market interest in Internet funds but also in
understanding better the whole process of building a portfolio:
· Short-term stock traders: Today's new breed of online stock
investors/traders are street-smart, armed with information and powerful
tools, and confident that they can do better, faster than the Wall Street
pros. They crave the action. They're willing to take risk. They love the
psychological thrill of picking the next Yahoo!, Amazon.com or
eBay. They believe you should invest in what you know, and they know
the Net!
· Long-term fund investors: In contrast, fund investors are by nature
conservative, long-term, buy 'n' hold personalities. They seek
diversification and avoid avoid risk. The action in the market makes them
nervous; they prefer sleeping peacefully. The Internet is risky business, so
don't play with too much of your portfolio in this arena.
Internet funds are just another technology play
Besides, what's the difference between an "Internet fund" and the
run-of-the-mill technology fund? If Munder were a real Internet fund, it
would have been heavily positioned in the pure Internet stocks like
Amazon and Yahoo!, instead of a minuscule 1.2 percent in each. Instead,
Munder had over 50 percent in boring, big-cap, blue-chip brand names
that have been around forever.
OK, so Munder NetNet's returns were about 100 percent in 1998, so
what? If you had your money in Yahoo!, AOL, eBay, Amazon, Infoseek,
Excite, Lycos or Onsale, you'd have done better than Munder.
INTERNET
STOCK
Ticker
1998
INCREASE
Amazon
(AMZN)
966%
Yahoo!
(YHOO)
606%
America
Online
(AOL)
522%
eBay
(EBAY)
434%
InfoSeek
(SEEK)
365%
Excite
(XCIT)
198%
Lycos
(LCOS)
158%
Onsale
(ONSL)
144%
CNET
(CNWK)
73%
The fact is, today's new online investors are driving the market, and
they're confident they can beat the professional money managers in the
Internet stock market. Moreover, they love the action!
Better alternatives in tech sector funds
If these Internet funds are really just technology sector plays, what are
your alternatives? Lots. So if you're going to make a sector play trading in
the new technologies, but you still want to do it with funds, forget Internet
funds -- you should consider one of Fidelity's 38 sector funds -- in
particular, one of its two high-performance technology funds:
· Fidelity Select Electronics Fund (FSELX)
· Fidelity Select Computers Fund (FDCPX)
The $2.4 billion Select Electronics has returned over 50 percent in the
past year and averaged about 35 percent the past three years. The $1.2
billion Select Computers has returned a whopping 90 percent the past
year, averaging 40 percent the past three years. Not as hot as the pure
Internet funds but also not as risky because they're invested in solid blue
chips, not high-flying Internet stocks, as you can see in the top 10 holdings
of Fidelity Select Computers:
Fidelity Computer Fund: Top holdings
Ticker
Percent
Dell Computer
(DELL)
10.5%
EMC Corp.
(EMC)
8.2%
Quantum Corp.
(QNTM)
6.3%
Compaq Computer
(CPQ)
4.4%
Microsoft
(MSFT)
4.3%
Cisco Systems
(CSCO)
4.2%
Sun Microsystems
(SUNW)
4.0%
Texas Instruments
(TXN)
3.2%
Linear Technology
(LLTC)
3.0%
Intel
(INTC)
2.9%
Total percentage in top 10 holdings
--
51.0%
Bottom line: As I said yesterday, investors and the market haven't warmed
up to Internet funds because Internet stocks have higher returns and are
more exciting for the individual investor, who has an advantage over most
institutional pros. So if you really want to make an Internet play, you'll play
with Internet stocks, not Internet funds.
The primary purpose of a mutual fund is long-term investing, not
short-term stock trading. Someday, Internet funds may become popular,
but not for some time. "New economy" investors love the action in
Internet stocks too much! |
