New-Power Generation? Fund Firms Bet Alternative Energy Will Be the New Sector Boom
It looks like the fund world might have found its next "new new thing" to pick up where the Net-fund boom left off: Energy tech funds.
Over the past 90 days, fund companies have either launched or filed paperwork with regulators for the first four mutual funds focusing on the new-power/alternative energy industries. Unlike broader energy funds, this pack will focus to varying degrees on a thinner band of the energy/utilities sector, namely companies that either sell power at steep prices to utilities unable to keep up with their customers' demands, and those developing new ways to keep the lights on or maybe even run your car.
Like Net funds back in 1996, these rookies will probably hold several stocks with compelling stories and no profits, and the funds will only be worthy of 5% or less of your portfolio. The bottom line is that a broader energy or utilities fund might make more sense for most investors, but those adventurous souls looking for the next highflier might find it here.
To many, this will look like a familiar trend, where new funds have rolled off the assembly line to focus on a hot sector, slicing that sector more thinly to stand out from the crowd. Energy funds of all flavors have had a nice run, thanks to rising demand and high energy prices, so it's not a surprise that about one-third of the energy funds out there have launched since 1998.
These four funds are getting in early on the alternative energy sector
|Merrill Lynch New Energy Technology*||Launched Oct. 30||"will invest globally in companies which have a significant focus on alternative energy or energy technology."|
|Munder Power Plus||Filed Dec. 13||"will invest at least 65% of its total assets in companies that are primarily engaged in non-regulated energy and power activities."|
|Turner New Energy & Power Technology||Filed Dec. 15||"invests substantially all (at least 80%) of its assets in equity securities of energy and power companies that are traded in the United States and that are using new or advanced technology to produce or deliver their product."|
|Kinetics Energy fund||Launched Dec. 31||"invest(s) in large, medium and small cap companies-including alternative energy companies"|
|Sources: Company Web sites and 10kwizard.com. *A closed-end fund for non-U.S. investors.|
|Following Hot Returns
Some of the stocks that will probably end up in these funds are coming off outsize gains in 2000
The Junk PileIf you think sector-fund investing has taken off, you're right. Asset allocation models not found in MAD magazine typically advise investors to limit their sector-fund investments to 5% or 10% of their portfolios. The logic here is that they already have exposure to those sectors in the other funds they own, so loading up on a sector fund can ramp up volatility. Well, it looks like investors have been blowing right through that 10% guideline. Between 1990 and 1998, sector funds never accounted for more than 4.8% of net cash flows to U.S. stock funds. In 1999 that figure jumped to 19.9% and through the end of November last year, it was 29%, according to the latest data from Boston-based Financial Research.
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