A look at the tech funds bouncing highest from last year's depths shows us that the sprawling sector is a multisplendored thing.
The first 20 or so trading days of this year have shown us why mercurial tech funds are fun to watch -- and why it's smart to limit them to about 5% of your portfolio. Look at this young year's eclectic top-10 list and you'll find Net funds starting the long climb out of last year's deep crater, but also broader tech funds with big stakes in semiconductor shops.
Despite all the recent talk of Net-centric or "New Tech" shops' dominance, so far this year tech funds have also benefited from holding PC-related or "Old Tech" stocks like
Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks) and
Intel (INTC Quote - Cramer on INTC - Stock Picks), up this year 40.8% and 22.3%, respectively. These funds and stocks we're looking at aren't being presented as a buy list, but just a glimpse at the breadth of the vast and dicey sector's rally this year.
"It's interesting that there's been a weird parallel rally," says Pat Dorsey, director of stock analysis at
Morningstar. "On one side you've Microsoft,
AOL (AOL Quote - Cramer on AOL - Stock Picks) and the PC stocks and telecom stocks like
WorldCom (WCOM Quote - Cramer on WCOM - Stock Picks) and
AT&T (T Quote - Cramer on T - Stock Picks). The common thread is that they got absurdly beaten down in the fourth quarter. Then you've got what I call the silly [Net-related] stocks like
Aether Systems (AETH Quote - Cramer on AETH - Stock Picks) and
Openwave Systems(OPWV Quote - Cramer on OPWV - Stock Picks), the old phone.com and software.com.
Akamai Technologies (AKAM Quote - Cramer on AKAM - Stock Picks) and
724 Solutions (SVNX Quote - Cramer on SVNX - Stock Picks) are all way up, too."
The list of leading tech funds reflect this eclecticism.
On one hand, you've got Net funds like
(RYIAX Quote - Cramer on RYIAX - Stock Picks)Rydex Internet and
(WWWEX Quote - Cramer on WWWEX - Stock Picks)Kinetics Internet Emerging Growth. You'll even find the
(JAMFX Quote - Cramer on JAMFX - Stock Picks)Jacob Internet fund, notorious for its breathtaking 79.1% loss last year, worst of all funds.
That might not be too surprising given the number of Net faves charging north since Jan. 1:
Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks), up 23.7%; America Online-Time Warner, up 51%; and
eBay (EBAY Quote - Cramer on EBAY - Stock Picks), up 46%.
Net funds' worst-to-first bounce will get a lot of ink, but the other funds on the leader board illustrate broader strength. Many of the non-Net funds on this list like
(FSELX Quote - Cramer on FSELX - Stock Picks)Fidelity Select Electronics and
Aetna Technology got there by betting on semiconductor or chip stocks, including bellwether Intel. Several also saw their returns propelled by resurgent software bellwether Microsoft. This tosses a wrench in the theory that New Tech stocks are the only place to be in tech.
Consider PC stocks' bonny January -- the
Philadelphia Stock Exchange Computer Boxmaker Index rose 28% last month -- which shows that interest rate cuts have lifted both Old Tech and New Tech boats. Battered PC shops like
Apple(AAPL Quote - Cramer on AAPL - Stock Picks),
Dell(DELL Quote - Cramer on DELL - Stock Picks) and
Compaq (CMPQ Quote - Cramer on CMPQ - Stock Picks) are all up more than 40% since Jan. 1 after losing more than half their value last year.
Not too long ago when we screened for leading tech funds we found a pack powered by New Tech types like software shop
Oracle(ORCL Quote - Cramer on ORCL - Stock Picks) and networker
JDS Uniphase(JDSU Quote - Cramer on JDSU - Stock Picks). But a cumulative top-15 list of these top-10 funds' favorite 15 stocks turns up a more eclectic list, with solid representation from the chip sector. Semiconductor stocks comprise half of these funds' top 15.
It's hard to say how these funds and stocks will fare this year. If interest rate and tax cuts spur growth, tech funds and the stocks they love should march north with faster-growing New Tech shops leading the way. But if the economy's blues linger, the money that fled tech for health care stocks and financial stocks might stay out of the sector, leaving tech investors -- whether they own stocks or funds -- in a murkier position.
One thing that's certain is that tech funds haven't lost their racy streak. A portfolio of this year's 10 leading tech funds would've lost almost 40% last summer.
The Junk Pile
If Net stocks are a leap of faith, growth fund managers can give you a good idea of what companies have true believers. In the case of
Amazon.com(AMZN Quote - Cramer on AMZN - Stock Picks) and eBay, fund managers appear to have vastly different opinions.
This week Amazon
told the world it plans to fire a slew of people and finally offer something resembling a profit this year. Judging from growth fund managers' general distaste for the company's stock, however, it seems like the "smart money" has filed Amazon in the
"wait and see" pile. Consider that about half the growth funds that owned the stock at the start of last year didn't own it at the end of the year, in which it fell nearly 80%.
Booking From Amazon.com
|
 | Jan. 1, 2000 | March 31 | June 30 | Sept. 30 | Jan. 1, 2001 |
| Percentage of Growth Funds Owning AMZN | 11.7 | 8.7 | 7.5 | 5.7 | 5.9 |
| Quarterly Stock Returns | -4.8 | -12.6 | -45.4 | 5.9 | -59.5 |
| Source: Morningstar and Baseline/Thomson Financial. |
Online auction shop eBay, which is profitable and continues to
exceed expectations, maintained a steady following among growth fund managers last year, even though it dropped by 47%.
Bidding Up for eBay
|
| Jan. 1, 2000 | March 31 | June 30 | Sept. 30 | Jan. 1, 2001 |
| Percentage of Growth Funds Owning EBAY | 9.4 | 9.9 | 12.2 | 10.3 | 10 |
| Quarterly Stock Returns | -11.3 | 40.6 | -38.3 | 26..4 | -51.9 |
| Source: Morningstar and Baseline/Thomson Financial. |
Ian McDonald
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