Merrill Plans to Shutter Ailing Internet Strategies Fund

Any day now, Merrill Lynch will ask shareholders of its (MANTX)Internet Strategies fund to put the young but battered fund out of its misery in a move that underscores the risks of ultra niche sub-sector funds.

The technology sector fund raised more than $1 billion in a splashy launch on March 22, 2000, a dozen days after the tech-laden Nasdaq Composite peaked. It's down more than 58% over the past 12 months, trailing the S&P 500 by more than 47 percentage points and lagging behind 81% of its peers, according to Morningstar. A draft of a prospectus supplement provided by Merrill indicates that the firm plans to mail shareholders of the broker-sold fund a proxy asking them to approve the fund's merger into the (MAGTX)Merrill Lynch Global Technology fund. Proxies will be due Aug. 31, according to a company spokeswoman.

Both funds' are managed by Paul Meeks, who recently stopped by for an interview.

This is just the latest in a series of sagging Net funds either cashing out or changing their stripes. At the start of 1999 there were just four Net funds and now there are more than 30 as fund companies tripped over one another to capitalize on investor demand. While the fund's made good marketing sense, many were born just as the Net-stock bubble popped. TheStreet.com's Internet Index is down 79% since the Nasdaq's peak on March 10, 2000. Shares of pure play Net bellwethers like Yahoo! (YHOO)and Amazon.com (AMZN) are down a whopping 83% and 70%, respectively, over the past 12 months, according to Morningstar.

As Net stocks have cratered, many of these funds have shuttered or broadened their menu. This year the no-load StockJungle.com Pure Play Internet fund and the Zero Gravity Internet fund have both liquidated, while the broker-sold (MFITX)Monument Internet fund now has a broader focus, a new manager and a new name: Monument Digital Technology. The fund topped all Net peers in 1999 with a 273% gain, but has lost more than half its value over the past 12 months, according to Morningstar.

The Global Technology fund, a broader, less aggressive tech fund, has fared better than the Internet Strategies fund but still lags its category average. Launched in 1998, the fund trailed its average peer in 1999 despite an 88% gain and narrowly trailed its competitors with a 34.1% tumble last year. So far this year, the fund is down 24.9%, lagging 63% of tech funds.

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