A Good Tech Fund Is Hard to Find

If you're ready to let a pro pick your tech stocks, you're in for a rude awakening: Despite their swelling ranks, it seems a good tech fund is surprisingly hard to find.

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Let's face it, picking tech stocks just isn't the blithe and profitable avocation it was in 1999 when even Attorneys.com's shares rose 139%. Today even former "must-owns" like Microsoft(MSFT Quote) and Dell Computer (DELL Quote) have lost half of their value since Jan. 1.

So maybe you're still a believer in the merits of owning tech stocks over the next 10 or 15 years, but you don't know which to buy. The natural response is do the virtual walk of shame to the tech fund menu of your broker's Web site.

Ah, if it were only that simple.

Though there are about 120 tech funds out there, their general youth, high manager turnover and inconsistent performance leaves slim pickings when you run even a fairly pedestrian screen to winnow that long list. Let's run one seemingly simple filter to show you what I mean and then I'll unearth some candidates.

Let's say you use Morningstar's fund screening tool to fish out tech funds that are beating their average peer so far this year and over the past five years with the same skipper at the helm. This would capture funds and managers that outperformed in recent good and bad markets. Of course, I should make those nouns singular, because only the no-load (TVFQX Quote)Firsthand Technology Value fund run by tech guru and CNBC darling Kevin Landis makes the cut.

That's one fund out of 122. Run the same screen in the similar-size 123-fund small-cap value fund category and you'd get 15 funds. Even five of the 35-fund utilities-fund tribe make the cut.

The problem is that only 19 of the 122 tech funds out there have even been around for five years. Record returns begat record in-flows, which begat a geyser of new funds, which begat a spate of tech manager poaching. So, only six of the 19 funds that have five-year records have actually had the same manager over that time span, according to Morningstar data. Also, given that the average tech fund is down 19.3% this year, those highfliers that crashed hardest don't make the cut.

Panning for Gold in an Ocean of Rookies On the heels of hot returns and in-flows, the overwhelming majority of the 122 tech funds out there launched in the past five years.

Source: Morningstar and MaxFunds.com.

Clearly there are many reasons to like Landis' Tech Value fund. It tops all funds over the last five years with a 46.9% annualized return, compared with 18.5% for the S&P 500. A $10,000 investment in the fund when it started out in May 1994 -- not that anyone but a fund's manager typically forks over that kind of cash on Day One -- would've been worth more than $148,000 through Oct. 31, compared with $35,247 for the same investment in the S&P 500.

But he now manages or co-manages a whopping six tech/telecom sector funds and might be stretched a bit thin. Also, whenever you screen stocks or funds and come up with one answer, it's often a sign that you should go back to the virtual drawing board. At best, you've hit the nail on the head, but at worst you've ruled out a lot of intriguing options by being a bit too strict with your criteria. Either way, it's a good idea to cast the net again.

Now let's lower the bar a bit for the tech pack and see if we dredge up some interesting candidates. When we screen for tech funds that have topped their peers this year and over the past three years with the same manager, we come up with eight names. Once again, our list includes Landis' Tech Value fund, and I've thrown in the no-load (ISWCX Quote)Invesco Telecommunications fund, because it has 65% of its assets in tech stocks. (For details on manager Brian Hayward's approach check out this recent 10 Questions interview.)

Lowering the Bar for the Tech Crowd With slightly less stringent criteria, seven candidates emerge.
Fund	YTD Return	3-Year Annualized Return	Manager's Tenure
(ICTEX Quote)Icon Information Technology	19.4%	45.85%	3 years
(TVFQX Quote)Firsthand Technology Value	11.6	54.9	6
(DRGTX Quote)Dresdner RCM Global Technology	-0.5	64.1	4
(PPTIX Quote)Principal Preservation PSE Tech 100 Index	-6.5	42.4	4
(DTGRX Quote)Dreyfus Premier Technology	-11.2	60.6	3
(BINVX Quote)Berger Information Technology	-12.6	53	3
(ISWCX Quote)Invesco Telecommunications*	-12.6	43.3	3
Avg. Tech Fund	-19.3	37.7	2
Source: Morningstar. Data through Dec. 8. *Classified as a communications fund despite a 65% tech weighting on Sept. 30.

Add this pack to your list of possibilities to research, too. Don't just check out their performance; also use Morningstar's site to check out how their volatility stacks up with their peers and whether they tend to lean toward large-cap or small-cap stocks.

Of course, there's good reason to look beyond statistics -- and beyond tech labels. For instance, Oak Associates' James Oelschlager runs two tech-heavy no-load growth funds that are decent choices for tech-hungry investors: the large-cap growth (WOGSX Quote)White Oak Growth Stock fund and the mid-cap growth (POGSX Quote)Pin Oak Aggressive Stock fund.

I've got a short list of tech funds that stand out to me -- some of which made our list and some didn't. I think you've obviously got to at least look at Landis' funds and a tech fund run by Oelschlager: (ROGSX Quote)Red Oak Technology Select.

And then there's the elephant in the room that we haven't discussed: Fidelity. Though the firm is known for its acumen at picking tech stocks, it's Select sector funds are often screened out because they change managers as often you change your shirt. That said, the following funds would've made our original screen if management tenure weren't included: (FSPTX Quote)Fidelity Select Technology, (FSELX Quote)Fidelity Select Electronics, (FSCSX Quote)Fidelity Select Software & Computers and (FDCPX Quote)Fidelity Select Computers.

And then there's Bob Turner, who founded Turner Investment Partners in 1990. He missed the cut because the no-load (TTECX Quote)Turner Technology fund only launched last year. Though the fund is young, Turner is a savvy manager, and his fund is worth watching.

You might be intrigued by the exchange-traded Nasdaq 100 Trust Shares(QQQ Quote). I've left them off the list because this year the low-cost basket of big-cap tech stocks is down 30%, trailing the average tech fund by more than 10 percentage points, according to Morningstar.

Clearly, picking a tech fund isn't much easier than choosing a tech stock, but looking at the names we've turned up should at least give you a good start.

The Junk Pile

If you're curious what stocks helped these tech managers from the last screen beat their peers this year, look no further. As you might imagine, it's a list dominated by New Tech shops, namely firms relying on the Internet more than PC sales. If you worship at the Church of What's Working Now, here are 10 stocks that separate these managers from the pack.

What They Like Among the seven leading tech/communications funds above, these were their top-10 picks.
Stock	YTD Return	Number of Top-Seven Funds Owning Shares
Applied Micro Circuits(AMCC Quote)	119%	4
PMC Sierra(PMCS Quote)	70.9	5
Ciena(CIEN Quote)	297	5
EMC(EMC Quote)	59.2	5
Corning(GLW Quote)	77.1	3
Siebel Systems(SEBL Quote)	140	4
Network Appliance(NTAP Quote)	110	3
Juniper Networks(JNPR Quote)	189	4
BEA Systems(BEAS Quote)	123	3
Vitesse Semiconductor(VTSS Quote)	16.6	5
Source: Morningstar and Baseline/Thomson Financial. Data through Dec. 9.