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

Indeed, as of March 31 of this year, Janus' stakes in eBay, Yahoo! and Amazon.com totaled 2.5% of their assets under management, according to institutional-ownership tracker Lionshares.com -- not enough to devastate the funds even if all three stocks cratered at once. (Janus officials didn't return calls for comment in time for publication.)

Janus' relative prudence doesn't mean investors in the three companies should breathe much easier, however. The firm is the second-largest institutional owner in eBay, holding 4.3% of shares outstanding. Janus also owns 3.75% of Amazon shares and 2.91% of Yahoo! shares, making it the third- and fourth-largest institutional owner, respectively.

Concentration

While individual funds may be less vulnerable to overexposure to a single stock or sector, a few funds remain tethered to the fortunes of a few concentrated picks.

Perhaps the best known is Bill Miller and Legg Mason's outsize bet on Amazon.com. Legg Mason funds own nearly 14% of all Amazon.com shares outstanding, and the stock recently accounted for 8.66% of Legg Mason's portfolios, according to Lionshares -- it is the top holding of Miller's ( LMVFX Quote)Legg Mason Value Trust. Another Legg Mason fund, ( FOCTX Quote)Focus run by Robert Hagstrom, had more than 17% of its assets in Amazon, eBay and Yahoo!, according to Morningstar's data.

Hagstrom was on vacation last week and unavailable for comment. But his fund is well-advertised as a concentrated fund -- the skipper makes big bets on about 20 stocks and alerts investors that such concentration may mean short-term volatility. Miller and Hagstrom's funds have been great performers over the long haul, but investors should recognize that the big Internet stakes may mean a bumpier ride.

In the Net 10 of the 86 funds with more than 5% of assets in the Web's big three
Fund	Percentage of Fund's Assets in Yahoo!, eBay and/or Amazon.com
Amerindo Technology	35.26%
Legg Mason Focus	17.57
TCW Galileo Technology	16.36
Munder NetNet	12.57
IDEX Janus Growth	8.93
Legg Mason Value	8.14
Van Kampen Emerging Growth	7
Janus Global Technology	6.42
Calamos Growth	6.39
Fidelity Capital Appreciation	5.53
Source: Morningstar

Such big bets by one institution often serve a grist for the rumor mill. Last week, whispers that a big Amazon owner was looking to sell a block of several million shares put a bit of pressure on the stock Friday. Rumors along those lines are not new.

Meantime, tech funds such as the Amerindo Technology and ( MNNYX Quote)Munder NetNet are by definition heavily invested in the likes of eBay, Yahoo! and Amazon. According to Lionshares, Amerindo's funds had 31% of their assets in eBay -- that only translates to about 1% of all eBay shares, making Amerindo much more vulnerable to eBay than eBay to Amerindo.

Investors looking to buy into mutual funds these days may be lured by tech-heavy funds that have scored by so far this year by riding the momentum of the Internet revival, but individuals would do well to resist the urge to jump into a tech-specific fund -- especially since, as the ownership levels of the big three indicates, most ordinary funds still have plenty of tech already, thank you.

Besides, "hot short-term performance tells you more about the risk profile than skill," Kinnel says.