Bloodied but Unbowed: Net Fund
Managers Say They're Buying
By Ilana Polyak
Staff Reporter
4/14/00 8:39 PM ET
There were few growth-oriented mutual funds untouched
by this week's market bloodbath. But few have suffered
as much as Internet funds.
"Technology funds have been hit, but the Internet funds
have been hit more," says Diahann Lassus, a financial
planner in New Providence, N.J. "The hardware
companies have held up better than the Internet.
Technology funds can buy hardware, Internet funds
don't."
Some Internet funds have taken 30%-plus losses in the
past two weeks as the Nasdaq stumbled lower each
session. Amerindo Technology is off 39.8% in April.
PBHG New Opportunities is down 40.5%.
In the past week alone, the Nasdaq fell 13.8% and is
down more than 18% for the year. TheStreet.com
Internet Sector index was down more than 32% for the
week. Hardly any part of the Net was spared, from
leaders like Yahoo! (YHOO:Nasdaq - news - boards) to
business-to-business upstarts like Akamai
(AKAM:Nasdaq - news - boards).
Internet fund managers, while bemoaning the negative
shift in investor sentiment toward the sector, say they're
still buying and they still have the cash to do so.
Steven Witt, managing director of Firsthand Funds,
says his firm is ready to buy companies that look
appealing now that they've shed a chunk of their
valuations. "If there are good opportunities, we have
some cash to buy," he says, mentioning Sun
Microsystems (SUNW:Nasdaq - news - boards) and
PMC-Sierra (PMCS:Nasdaq - news - boards). Investors
have poured $2 billion into Firsthand funds since the
beginning of the year, but only about $200 million has
been redeemed by investors in the recent selloff, he
says.
Still, the sector will not be the cornucopia it has been in
the past. "In general the movement may have switched
from being focused on earnings to being focused on
valuations, and anything with a huge P/E or no P/E got
caught in the crosshairs," says Witt, referring to
price-to-earnings ratios, a key measure of valuation.
The San Jose, Calif., company's flagship Technology
Value fund is down 37.8% for the month through Friday.
It's one of the worst hit in the group.
"Show me an Internet fund that hasn't been hurt," Witt
challenges. "The market is saying that as a herd, tech
is bad."
Some Internet funds held up their negative numbers as
evidence that they're on the right course.
"Our underperformance reflects the purity of the portfolio
to Internet stocks," says Robert Burgoyne, technology
strategist with Monument Funds of Bethesda, Md.
Monument's Internet fund was the top-performing Net
fund of 1999.
Since the carnage began, the fund has fallen 28.3% in
the nine-day period ending Thursday. But Burgoyne
says the fund continues to buy the Internet sector. He's
particularly enamored of hardware and software makers,
including Sun Microsystems and Oracle (ORCL:Nasdaq
- news - boards), both of which could benefit from
Microsoft's (MSFT:Nasdaq - news - boards) antitrust
difficulties.
He also likes Ariba (ARBA:Nasdaq - news - boards),
the business-to-business software provider, and
BroadVision (BVSN:Nasdaq - news - boards), a
software enabler.
"If you're an Internet company, you're not going to
escape using Ariba software," he says.
Another Internet highflier brought low is RS Internet Age,
managed by Morningstar Manager of the Year Jim
Callinan and co-skipper Cathy Baker. That fund followed
up a 17% gain in March with a 31.2% drop in the first
nine trading days of April through Thursday.
Baker admits that RS Internet was in a particularly poor
position given its emphasis on small-cap names as the
market was moving to household names. She also
blames some diversified mutual funds that got into
technology in recent months then abandoned the sector
when the Nasdaq started to fall.
"When the momentum left the space, they left it very
aggressively, since it is not their area of expertise,"
Baker says. "We believe that was a key factor in the
severity of the decline of these growth stocks."
But you didn't have to be exclusively in the Internet to
have your fund fall. Robert Loest, manager of the IPS
New Frontier fund did it with a concentrated,
tech-heavy portfolio.
Not one to mince words, Loest says his fund has some
"scary stuff." Just three names make up 32% of its
assets -- Yahoo!, flash disk storage provider SanDisk
(SNDK:Nasdaq - news - boards), and fiber-optics maker
JDS Uniphase (JDSU:Nasdaq - news - boards). Loest
is an enviable position, though, with money continuing to
come into the fund.
The fund fell 25.4% for the month through Wednesday.
Thanks to heavy inflows, Loest says he's been buying
more shares in his top three holdings. "There's
absolutely nothing wrong with those stocks," he says. In
the long term, he remains bullish. "There's very little
downside risk in the investing in the Nasdaq now," he
said on Thursday. But that was before the Nasdaq fell
more than 300 points on Friday.
It certainly didn't help the already beaten down stocks.
For the month through Friday, JDS Uniphase lost 33.9%
of its value, while SanDisk gave up 31.4% and Yahoo!
fell 32.3%.
"We're just giving back some of the outrageous gains of
last year that were unearned," he says.
Despite the carnage, Loest says he's not giving up on
the Internet. He's still fond of such names as
VerticalNet (VERT:Nasdaq - news - boards), down
58.8% in April through Friday; VeriSign (VRSN:Nasdaq
- news - boards), down 34.5%; Network Solutions
(NSOL:Nasdaq - news - boards), down 31.1%; and
Healtheon/Web MD (HLTH:Nasdaq - news - boards),
down 20.3%. |
