Tech Mutual Funds to Lose Money for the First Time in 15 Years!
Nov. 21 (The Philadelphia Inquirer/KRTBN)--Technology mutual funds, which have outpaced the stock market for most of the last two decades, are on track to lose money for the first time in 15 years.
Funds that focus on Internet stocks have been hardest hit, but even more broadly diversified technology funds are deep in the red so far this year.
On average, the 163 mutual funds that focus on tech stocks have lost 14.47 percent so far in 2000, according to fund-tracker Lipper Inc. And that figure only hints at the true extent of the carnage. Since the technology-heavy Nasdaq Composite Index began its steep slide March 10, the average tech fund fell 37 percent.
Tech funds are dropping mostly because they were up so much last year. In 1999, the average tech fund more than doubled in value, making managers look like geniuses when many simply benefited from a mania for computer, networking, Internet, telecommunications and software stocks.
"I think what happened was we [investors] doubled our money too quickly," said Christopher Traulsen, who researches technology funds for Morningstar Inc. "What we had last year was certainly a speculative bubble if we've ever seen one."
A few pieces of bad news -- slowing sales at Dell Computer Corp., an earnings shortfall at Hewlett-Packard Co. -- burst the bubble, he said.
The ride up and down was so swift and furious that investing experts say it is a good time for individuals to take stock of their tech portfolios.
Lesson No. 1: "Asset allocation and diversification work," said Phil Edwards, director of mutual fund services for Standard & Poor's Corp.
People who loaded up on tech stocks were the hardest hit. Most investors need to own tech, but probably no more than the amount in a broad market index. The S&P 500 index of blue-chip stocks is made up of about 30 percent tech stocks, which should be plenty for most people.
If you own too much tech, this may be a good time to sell and take some losses to reduce your taxable income. On the other hand, don't give in to the urge to sell all your tech funds.
"This is a bad year for technology," Edwards said. "It doesn't mean you should bail out of tech altogether."
But you can use the time to get to know your tech fund better. Some of last year's highest-fliers fell the hardest. Amerindo Technology, which gained an eye-popping 250 percent last year, has sunk 51 percent so far this year.
That's because manager Alberto Vilar stuffed the portfolio with glamorous Internet names such as CMGI Inc., which invests in Internet companies such as AltaVista. CMGI's shares are off 91 percent so far this year.
"This is not surprising for us. We knew that this was going to be a difficult year," the director of corporate communications at Amerindo, Richard Ducas, said. "We believe we're going to come out of this shortly. Investors really need a three-year time horizon for tech funds."
Morningstar's Traulsen said he thought investors were better off in a more broadly diversified technology fund such as Fidelity Select Technology, which is off just 15 percent for the year. He also said he thought Invesco Technology, off just 5 percent for the year, was a good choice.
All tech funds are down since March 10 when the Nasdaq closed at a record high of 5048.62, but a handful have managed to stay in the black. The only one that is up significantly, however, is Red Oak Select Technology Fund, managed by James Oelschlager and Douglas MacKay in Akron, Ohio.
Thanks to a well-timed bet on optical networking companies, the firms that hope to profit by transmitting information in the form of light, Red Oak is up about 16 percent for the year.
"We moved into stuff we thought was beat up," MacKay said. One that paid off was Juniper Network, which makes equipment that routes data over optical networks. Juniper is up 125 percent so far this year.
Red Oak also benefited by selling stocks of personal computer makers such as Gateway just as signs of slowing sales emerged. The fund also avoided profitless Internet stocks entirely last year, which lessened the pain this year.
"It wasn't really clear they would be able to survive," MacKay said.
Morningstar's Traulsen, however, cautioned against believing that
superior performance during this downturn automatically proved a manager's superiority. He says it was too hard to know whether Red Oak's move into optical stocks suggested smarts or luck.
Like many other tech fund managers, MacKay said he was confident that his sector would rebound. The double-digit profit growth rates that many tech companies are enjoying will mean higher stock prices eventually.
He said he liked Network Associates Inc., a computer security company. Its shares have slid 40 percent so far this year, despite projected yearly profit growth of 70 percent, MacKay said.
Closer to home, Jeff Wrona, who manages PBHG Technology & Communications fund, in Chesterbrook, has watched his portfolio go from a 244 percent return last year to a 51 percent decline this year.
He blamed a slowing economy that has hurt prospects for technology stocks. Companies such as InfoSpace Inc., which accounted for about 6 percent of his fund's portfolio, are down almost 70 percent so far this year. The company's stock had soared on the belief that people would use wireless devices such as cell phones and Palm Pilots to get data. But as the stock market cooled off and the economy slowed, investors started to think that InfoSpace, which provides data and other services to the wireless Web, was overhyped.
Despite that, Wrona said he thought the good times would return soon.
"My message for the next five years is the same," Wrona said.
"Technology is where you want to be. These companies have the most dynamic earnings potential of any sector out there. They have come down so far so fast. We are more near the bottom today than we have been in quite a while."
By Miriam Hill |
