I Own What?! Net Funds' Odd Innards

You might not expect a Net fund to invest your money in companies that make chocolates or batteries or coffee tables, but it might do just that.

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There aren't many companies that don't have a Web site or haven't used the Internet to do business. At the same time, most pure-play dot-com stocks that were once in the market's sweet spot are now furthest from it. Consequently, many Net-fund managers have stretched their definition of a Net stock to include companies like EnergizerENR, Rocky Mountain Chocolate Factory RMCF and Ethan Allen InteriorsETH. Today's I Own What?! combs through the Net-fund pack and pulls out some downright puzzling picks that are supposedly justified by the Net's ubiquity.

"Is there any part of the economy where the Net isn't involved now?" asks Chris Traulsen, a Net and tech-fund analyst with Chicago fund tracker Morningstar. "It's easy to make an argument for owning a wide spectrum of stocks in a Net fund."

The upshot: There might not be another fund type that better illustrates why you can't assume where a fund will invest your money given its name or classification than Net funds.

The broker-sold GITAXGoldman Sachs Internet Tollkeeper fund, for instance, had just half of its $817 million in tech stocks at the end of October. Among its holdings were battery maker Energizer, movie studio Metro-Goldwyn-MayerMGM, Spanish-language TV broadcaster UnivisionUVN and radio broadcaster Westwood OneWON. The fund is down 33.9% over the past year, compared with a 41% fall for the tech-fund category in which Net funds are classified.

The no-load IMLLXiMillennium fund has about 28% of its money in tech stocks. Its holdings include financial companies such as American ExpressAXP, H&R BlockHRB and, ironically enough, Berkshire Hathaway -- the portfolio of companies picked by techphobe Warren Buffett. The fund also includes furniture maker Ethan Allen and Rocky Mountain Chocolate Factory. Despite its tech-light approach, the fund is down 44% over the past 12 months, trailing its average peer.

A Puzzling Portfolio Net funds hold these stocks, though you might wonder why
Net Stock?	Main Business	Net Fund
ADP	Payroll processing	Pilgrim Internet
American Express	Financial services and travel	iMillennium
Berkshire Hathaway	Insurance and consumer products	iMillennium
Energizer	Batteries	Goldman Sachs Internet Tollkeeper
Ethan Allen Interiors	Furniture	iMillennium
H&R Block	Tax preparation	iMillennium
Marvel Enterprises	Toys	Kinetics Internet
Metro-Goldwyn-Mayer	Movies	Goldman Sachs Internet Tollkeeper
Oakley	Sunglasses, goggles, watches	RS Internet Age
Office Depot	Office products retailer	iMillennium
Ritchie Brothers Auctioneers	Auctioning industrial equipment	Kinetics Internet Infrastructure
Rocky Mountain Chocolate Factory	Chocolates	iMillennium
Tredegar	Plastic and metal packaging	Kinetics Internet Emerging Growth
Univision	Spanish-language broadcasting	Goldman Sachs Internet Tollkeeper
Westwood One	Radio broadcasting	Goldman Sachs Internet Tollkeeper
Sources: Morningstar, fund company Web sites, Lionshares.com.

The most Net-centric fund shop with the least tech or dot-com picks is undoubtedly Kinetics Funds. The firm offers four Net funds, and none has more than 35% of its money in tech stocks. The flagship WWWFXKinetics Internet fund owns toy concern Marvel EnterprisesMVL, while the WWWIXKinetics Internet Infrastructure fund owns shares of Ritchie Brothers AuctioneersRBA, a firm based in British Columbia that auctions industrial equipment.

The flagship Kinetics Internet fund tops all funds over the past five years, thanks to former manager Ryan Jacob's dot-com heavy strategy in the heyday of Net investing and the firm's tech-light, cash-heavy stance since his departure in 1999. With Jacob's own JAMFXInternet fund down 61% over the past 12 months, compared with a 14% loss for his former charge, you might think the broader approach to Net investing makes sense.

Pure Pain Dot-coms rose higher and fell harder than most tech stocks

Source: Baseline/Thomson Financial. Returns through Dec. 3.

But it's actually got warts. If you buy a Net fund, you probably wanted to own Net stocks. When a fund invests your money in places you never expected, you really have no idea what to expect in terms of performance. For example, a tech-light tech fund might not have gone down as much as others in the past months, but it quite possibly won't go up as much when the sector shows signs of life, either.

"Kinetics is at the top of the heap because they don't own much tech and carry a lot of cash in some of their funds," says Traulsen. "But that cuts both ways. They've been among the worst performers in the recent rally."

And if a Net fund is really just a cloaked go-anywhere growth fund, you can find plenty of those with lower risks, lower expenses and more tenured management. Funds like the adviser-sold AGTHXGrowth Fund of America and the no-load JAGIXJanus Growth & Income fund come to mind.

The bottom line, as always, is that you have to look at a fund's holdings before you buy a share because fund names and classifications don't always tell the whole story. If you want to invest in the tech side of the Internet, check out a broader tech fund with a history of outperformance vs. its peers, because there a manager can give you access to Net stocks without betting the farm on them -- DRGTXDresdner RCM Global Technology comes to mind.

And if you're looking for a broad approach to Net investing, just shop for growth funds.