Twice-Shy Funds Still Smitten With 'Net's Big Three

Remember the old sleepover party s¿ance game, "Light as a feather, stiff as a board" -- when everyone used two fingers to inexplicably lift a recumbent person?

Well, the fund industry is engaged in a collective game with the big three Internet companies: No one hand is responsible for the levitation of Amazon.com(AMZN Quote), eBay(EBAY Quote) and Yahoo!(YHOO Quote) shares, but they have reached perilously high levels nonetheless.

Many market pundits assessing the meteoric rise of the Net's big three, as well as other phoenix-like Internet risers such as Barry Diller's InterActiveCorp(IACI Quote), notch it up to questionable momentum chasing by mutual fund managers. Indeed, "institutional herding" -- when mutual fund managers dog pile into (or out of) a hot stock or sector as a group -- clearly is at work in the Internet sector.

However, as fund managers renew their love affair with Internet and tech stocks, it appears they're being a bit more prudent about overexposure in an individual fund, according to data provided by mutual fund tracker Morningstar. Of the 4,205 funds tracked by Morningstar, only 86 reported having more than 5% of their portfolios' assets in some combination of the Yahoo!-eBay-Amazon trifecta in the most recent reports. And with a few notable exceptions such as Bill Miller's (LMVTX Quote)Legg Mason Value, the overwhelming majority of the funds are clearly labeled tech funds, such as (ATCHX Quote)Amerindo Technology, which has 35% of its assets in the big three, according to Morningstar.

"The last three years have been a very sobering time, leading a lot of firms to re-examine their risk controls," said Morningstar director of fund analysis Russ Kinnel. "Growth managers have become far more valuation-sensitive."

Net Floats

While it may hearten mutual fund investors to know that few individual funds are loaded to the gills with a few frothy stocks, investors who own shares of the three companies should be alert. The across-the-board ownership of Yahoo!, eBay and Amazon.com is cause for alarm if funds that have been jumping in start getting out at the same time.

< Previous

1 2 3

Next >