The Daily Screen: The Best Communications Funds

Like a droll and much-maligned presidential candidate we all know, owners of communications funds are wondering how much worse it can get.

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These funds typically straddle the technology and telecommunications sectors, fishing in both pools -- more than 44% of the average communications fund's money is invested in tech stocks, according to Morningstar. After posting boffo returns last year, telecom and tech stocks have come crashing down with skittish investors deciding that their thin-air valuations weren't necessarily warranted. Consequently, the average communications fund is down more than 25% since Jan. 1 -- dead last among all U.S. stock fund categories.

Communications Breakdown The past year has hampered the once-stellar communications funds
	Average Communications fund	S&P 500
YTD Return	-29.9%	-8.9%
1-Year Return	-23.0	-6.5
5-Year Return	19.8	18.5
10-Year Return	20.6	17.7
Source: Morningstar. Annualized performance figures through Dec. 5.

That said, there's clearly good reason to look at this battered pack of funds. If you're a believer in the growth of the Internet and the buildout of the world's communications networks, a communications fund might make sense for 5% or so of your portfolio -- keep in mind that most growth funds are holding the same stocks.

And there is all that solid past performance, too. The average communications fund beat the Wilshire 5000 Total Market Index annually from 1991 through 1999, when the category averaged a gain of more than 70%. A $10,000 investment in the average communications fund 10 years ago would've grown to nearly $69,000 through Oct. 31, according to Morningstar. That's about $16,000 more than the same investment in the S&P 500 .

If you're intrigued, we've started your shopping. We've screened the 22-fund category for those that beat their average peer over the last one- and three-year periods. Only four made the cut. We've also sifted these leaders to see what funds they're betting on, but first let's look at our short list of funds.

Leading Communications Funds These few communications funds have bested their peers over one- and three-year periods
Fund	1-Year Return	3-Year Annualized
(FSDCX)Fidelity Select Developing Commun	-5.7%	40.1%
(ISWCX)INVESCO Telecommunications Inv	-11.3	37.5
(PRMTX)T. Rowe Price Media & Telecom	-16.3	25.9
(GABTX)Gabelli Global Telecommunications	-16.7	23.9
Average Communications fund	-23	22.4
S&P 500	-6.5	12.3
Source: Morningstar. Annualized performance figures through Dec. 5.

OK, all of our leading funds are underwater, but they're not down as far as their peers.

At the top is (FSDCX)Fidelity Select Developing Communications, which tends to big-cap networking stocks like Cisco Systems(CSCO). Fidelity offers two other funds in this category: (FBMPX)Fidelity Select Multimedia, down 21.5% since Jan. 1, and (FSTCX)Fidelity Select Telecommunications, down 31.5% on the year.

The Multimedia fund tends to focus on media and broadcasting stocks, while the Telecommunications fund offers broader exposure to the sector, including more traditional stocks like the Baby Bells. Each of these funds is probably worth a look, depending on your interest. Despite frequent manager turnover, Fidelity's deep bench of analysts has typically given it a solid reputation for running sector funds.

Keep in mind, however, that these funds levy a maximum 3% front-end load or sales charge.

Do-it-yourselfers might check out the no-load (ISWCX)Invesco Telecommunications fund, where manager Brian Hayward has distinguished himself since taking the reins in 1997. He likes tech stocks -- more than 64% of the fund was invested in tech on Sept. 30 -- but it's hard to argue with his performance. The fund beats more than 85% of its peers over the last one- and three-year periods but has experienced more volatility than its average competitor during his tenure.

If you'd like to hear directly from Hayward, check out this 10 Questions Interview.

For a less aggressive way to invest in the sector, check out the no-load (GA)Gabelli Global Telecommunications fund, where father-son managers Mario and Marc Gabelli have used a diversified, price-conscious style to lessen volatility. The fund beat its average peer over the last one-, three- and five-year time periods, too.

If there were any doubt as to the techy nature of communications funds, a look at the top picks among these leading funds should put that to rest. The cumulative top-10 stock picks of our four leading communications funds kicks off with three networkers: Cisco, Juniper Networks(JNPR) and JDS Uniphase(JDSU), which is set to swallow the No. 10 holding, SDL(SDLI).

Under the Hood The stocks with the biggest weighting in the combined portfolios of the four above funds
Stock	Weighting in Top-Four Funds	Number of Top-Four Funds Owning the Stock
Cisco Systems(CSCO)	3%	3
Juniper Networks(JNPR)	2.8	2
JDS Uniphase(JDSU)	2.6	3
Nokia CI A ADR(NOK)	1.8	4
Corning(GLW)	1.6	3
Nortel Networks(NT)	1.6	4
Telephone and Data Systems(TDS)	1.6	1
Vignette(VIGN)	1.5	1
Motorola(MOT)	1.5	3
SDL(SDLI)	1.4	3
Source: Morningstar. Holdings as of funds' most recent portfolio reports.

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