BOSTON ( TheStreet) -- A decade after technology mutual funds imploded, a new crop of managers who learned from others' blunders are finding success.
How? Old-fashioned stock-picking fundamentals. Back then, it was Boo.com, Pets.com and eToys.com. Today, it's the solidly profitable and stable Apple (AAPL - Get Report), Qualcomm (QCOM - Get Report) and Check Point Software Technologies (CHKP) that head fund manager's top-pick lists.
Technology funds are the second-best-performing sector this year, with a return of 5.4%, behind only energy, at 9.7%, out of 21 domestic fund categories tracked by Morningstar. During the past 12 months, technology funds are up 26%. The S&P 500 Index has risen 4.5% this year and 17.4% over 12 months.
If one needs a reminder of the investing environment around the time of technology's last big bust, one need only look at what happened to one of the hottest funds of its day, the Van Wagoner Emerging Growth Fund.The mutual fund quadrupled in 1999, helped by the rapid-fire investing style of manager Garrett Van Wagoner, who had rock-star status in the investment community. His success lured investors, and the fund's assets rocketed to about $1.5 billion in 2000 from $189 million the year before. But the technology bust of March 2000, 11 years ago this week, resulted in the fund losing 21% in 2000, 60% in 2001 and 65% in 2002. Investors disappeared as quickly as they had appeared. Not much later, what was left of the the fund was absorbed by another firm. But mutual fund analysts now say the sector is more stable and portfolio choices are based more on financial fundamentals than wishful thinking, so the impact of boom-and-bust cycles have been mitigated. "Many have viewed the sector with skepticism since the tech bubble burst more than a decade ago, but times have clearly changed for the better," Zacks Investment Research said in a Feb. 18 note. "Valuations are now based on stronger fundamentals, and careful selection of investments has yielded good long-term returns for many funds." Morningstar mutual fund analyst Courtney Goethals Dobrow said in an interview that "the gun-slinging (investment) environment" of a decade ago is a thing of the past. "You don't see managers building up a 40% (stake) in one stock. "Technology firms came out of the downturn somewhat chastened," such that they manage their businesses more conservatively and so have been able to handle downturns better than before, she said, which, in turn, helps the funds maintain stability in a period of volatility. Indicative of its newfound stability, the technology sector is the top-performing sector over the past three years, with an average annual return of 10.6%, notes Dobrow, citing Morningstar data. Here are five technology mutual funds that have shown solid returns over the past few years, despite the stock-market crash of 2008: