TheStreet.com: "Internet Funds Face a Still-Skeptical Industry" by Joe Bousquin. Hopefully, it's ok to repost here:
thestreet.com
Internet Funds Face a Still-Skeptical Industry
By Joe Bousquin
Staff Reporter
4/14/99 9:00 AM ET
URL: thestreet.com
The mutual fund industry can be slow to adopt new investment trends. But once it does, it usually jumps in feet first.
When Vanguard Group's Jack Bogle had the novel idea of matching the returns of widely followed indexes by investing in their
underlying stocks, he was mocked at first. But now $170 billion in mutual fund assets are indexed to the S&P 500 alone,
according to Lipper. In fact, no major fund company today would seem complete without an index fund.
Internet funds face similar skepticism within the industry. Only four open-end mutual funds bill themselves as Internet funds, and
none are associated with the biggest names in the industry. Yet, so far, each has been successful in attracting investment. Just
since January, assets in the four funds have grown 257% to $2.1 billion from $574 million. Returns have been spectacular.
Fab Four
Internet funds' assets, returns keep rising
Fund
January Assets
April Assets
YTD Return
Munder NetNet
$500 million
$1.5 billion
71.4%
Internet
$60 million
$500 million
127%
Monument Internet
$3.1 million
$25 million
131%
WWW Internet
$11 million
$24 million
45.4%
Source: Fund managers, Lipper
Yet representatives for Vanguard Group, Janus and Invesco, among others, say their companies have no active plans to launch
Internet funds.
Fidelity Investments, the largest U.S. mutual fund company, denies plans to launch an Internet fund despite speculation about
such a possibility. A few weeks ago, the company had to quell rumors spawned by a report in The Washington Post that
referred to the "Fidelity Select Net" fund. No such fund exists, says Fidelity spokesman Jim Griffin, explaining that the article
should have referred to the Select Software and Computer Services fund.
Fidelity fund watchers don't see a "Fidelity Select Internet" in the immediate future, either.
"I would be surprised if they ever came out with just a pure Net fund," says Jim Lowell, editor of the Fidelity Investor, an
independent newsletter that tracks Fidelity funds. "If they launched an Internet-specific fund now, it would smack of trend
following, and they're not trend followers."
Dennis Gallant, a mutual fund consultant with Cerulli & Associates in Boston, says big fund companies largely have sat on the
sidelines to protect their good names.
"There's a lot of concern that there's nothing holding these stocks up," says Gallant. "And these fund companies know that if you
live by the sword, you die by the sword. The larger the firm, the more unlikely they are to venture in this direction because they
don't want to hurt their brand."
Still, Gallant notes that Internet stocks haven't yet crashed like they were supposed to and that bigger fund firms might at least
have to give such funds some consideration, especially if they continue to attract assets.
Or as Elizabeth Stout, a spokeswoman at Invesco, puts it, "We don't have any plans to open as specialized a fund as that ... [but]
we continue to look at our product line and then also talk to shareholders at trade shows and the like."
At Vanguard, the Valley Forge, Penn., firm known for its index funds and common-sense approach to investing, spokesman John
Demming says the company has no plans to open an Internet fund because of concerns that it would attract "speculative
investors."
The company actually merged its Service Economy and Technology funds out of existence in 1994 after becoming concerned
that investors were trying to time the market with the funds.
"Our funds are designed for the long-term investor," Demming says.
Of course, larger fund companies like to point out the Internet holdings they have in their existing funds, like Janus Twenty's
famous top position in America Online (AOL:NYSE).
Janus spokeswoman Jenni Pieratt says the Denver firm doesn't plan to launch an Internet fund because it doesn't create funds to
match what's going on in the market. "We launch a new fund when there's an analyst or portfolio manager who's ready to take on
a fund. We want to do what's going to be best for Janus," Pieratt says.
Even at Munder Capital Management, the only long-established company to offer an Internet fund -- the $1.5 billion NetNet
fund -- the idea took some getting used to, says Brian Salerno, one of five co-managers of the fund.
Launching an Internet fund is "a tough decision for a lot of fund companies, because a lot of them have pure-play tech funds
already," says Salerno. "I think they mistakenly think it's cannibalistic to that."
After the launch of NetNet in August 1996, it was sometimes hard to get internal support for the fund, Salerno says.
"In the early stages, it was still, 'Let's see if this works,'" Salerno recalls.
David A. Kugler, a former Paine Webber broker who launched Monument Funds Group in 1997 and the Monument Internet
fund in 1998, says starting an Internet fund is more complicated than just rubbing two sticks together and plugging in the phone.
"This is a lot tougher business than people give it credit for," Kugler says. "The truth is, you and I haven't been here before."
Still, any savvy investor has to think that more Internet funds will sprout up if the four pioneering funds continue to amass assets
like they have. Lowell, the newsletter editor, says the potential for asset accumulation is "startling."
"What you and I should do is stop talking about this and launch one of our own," he says.
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