From today's electronic WSJ, mentions Ascend (in bold)
How Do Funds Define Internet
Stocks?
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Web-Focused Investors Find Wide-Open Worlds
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By Carrie Lee
The Wall Street Journal Interactive Edition
Marvin Greenberg thought his timing was perfect.
Eager to make a bullish bet on Internet stocks, he discovered the tiny
WWW Internet Fund and invested $15,000 on March 2. The no-load fund
based in Lexington, Ky., has nearly $3 million in assets. During the two
weeks that followed, Internet stocks caught fire. But when Mr. Greenberg
checked the performance of WWW Internet Fund about a week after his
investment, its gains were barely noticeable.
Between March 2 and 16, the Internet Stock Index known as Isdex,
published by Mecklermedia Corp. in New York, surged 12%, while
WWW Internet Fund added a skimpy 0.9%. Moreover, on March 9,
when Internet stocks staged a surprise rally in the face of overall weakness
in the the technology sector, the Isdex jumped 2.9%, while WWW Internet
Fund fell 1.6%.
What happened? Mr. Greenberg, a retired mathematics professor, did
some more homework and discovered that the WWW Internet Fund was
hardly a mirror of the Isdex index, which includes the stocks of 50
companies focused on the Internet. WWW, besides holding such traditional
Internet plays such as Spyglass Inc., has a large sprinkling of other stocks
that are somewhat afield from the Net, including American Express Co.
and Compaq Computer Corp.
Mr. Greenberg relayed the news March 10 on the message boards of
Motley Fool, a popular on-line forum for investors. He described his
surprise at learning that the WWW Internet Fund "invests 50% of its assets
in what it calls 'mature' companies supposedly in order to 'reduce risk and
volatility.'"
Lawrence York, lead portfolio manager for WWW, says his portfolio is
comprised of shares of three kinds of companies, "adolescent, midlife" and
"mature." Although this breakdown hampered the fund's performance
during early March, it helped cushion declines in the past, he said. Between
Jan. 22, 1997, and April 25, 1997, for instance, the Isdex sank 40%, while
WWW Internet Fund fell a narrower 22%.
In addition to American Express and Compaq, the fund's "mature" stocks
include Texas Instruments Inc., Intel Corp. and Motorola Inc. Some
favorites in the "adolescent" category are CheckFree Corp., a
transaction-processing company; Data Broadcasting Corp., an electronic
financial-data provider; and Ticketmaster Group Inc., an
automated-ticketing service.
Companies such as American Express are selected for the mature
category, Mr. York says, because they are building their infrastructures to
benefit from the Internet. American Express is developing its credit-card
business for electronic commerce, and its financial and brokerage areas will
benefit as consumers pay for advice and information over the Internet.
"Ultimately every business will have to adapt to the Internet," Mr. York
says. "We're trying to follow the leading-edge companies that recognize this
and are changing internally to do it."
But Mr. Greenberg, the investor, says WWW Internet Fund's name is
misleading. "I take responsibility for not researching the fund more
carefully," he says, noting that it lists its top holdings on its Web site. "But
when I first discovered they're not invested in what I thought, I got very
angry. I'll bet they've fooled a lot of people."
Mr. York and others says investors such as Mr. Greenberg aren't seeing
the big picture. "They should invest in stocks that will be deriving at least a
good chunk of revenues from Internet related activity," says Morningstar's
Russel Kinnel of funds focused on the Net. Mr. Kinnel, head of equity-fund
research at the mutual-fund tracking firm in Chicago, says fund managers
sometimes stretch their definitions of industry groups when selecting stocks.
NetNet Fund, another Internet stock fund, with $5.7 million in assets, also
fell short of the Isdex in the recent rally in Internet stocks. It returned 4.1%
between March 2 and 16. The no-load fund, part of the Birmingham,
Mich., Munder fund family, also uses a loose definition for Internet
companies. "Any company we feel will benefit from using Internet
technology, whether in a marketing or distribution format, is up for inclusion
in the fund," manager Paul Cook says.
A third fund, called Internet Fund, promises a narrower focus. Newly
appointed Fund Manager Ryan Jacob early this month sold the New York
fund's holdings in Microsoft Corp., Ascend Communications Corp. and
3Dlabs, to re-emphasize pure Internet stocks. Nonetheless, the fund
returned only 1.6% during the recent Internet stock runup.
Mr. Jacob, also director of research for IPO Value Monitor, a research
service, blamed the lagging performance in March on the performance of
Microsoft and 3Dlabs. Today, the fund's largest holdings are CMG
Information Services and Yahoo!. The fund has just $200,000 in assets. |
