Another Fund With 'Internet' in Its Name Is Going Away

It seems like a wilting Internet fund goes the way of Pets.com every day.

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The struggling (SNETX)Strong Internet fund will close to new investors on Friday and the fund's few shareholders will soon get a proxy due July 20 asking them to approve the fund's merger into the (STEKX)Strong Technology 100 fund, according to paperwork filed with regulators yesterday. The fund, run by James Houlton since its launch at the start of 2000, is down 58.1% over the past 12 months, trailing 86% of its tech-fund peers, according to Morningstar.

The fund is just the latest Net-centric offering to throw in the towel. The move highlights the dangers of investing in a niche fund that zeroes in on a slice of one industry sector.

Just last week, Merrill Lynch filed paperwork to ask shareholders of the (MANTX)Merrill Lynch Internet Strategies fund to merge that fund into the broader (MAGTX)Merrill Lynch Global Technology fund. At the start of 1999 there were just four Net funds, but after those four funds rocketed to an average 202% gain that year, fund companies rolled out more than 30 more Net-focused funds.

These funds showed up just in time for the Net-stock bubble to burst, and their thin mandates gave them little shelter. TheStreet.com's Internet Index is down a whopping 79.2% since the Nasdaq's peak on March 10, 2000. Net bellwethers Yahoo!(YHOO), Amazon.com(AMZN) and Cisco(CSCO) are down 75.5% on average over the past 12 months, according to Thomson Financial/Baseline.

During the past year's bloodbath, many sputtering Net funds have shut down or morphed into broader tech funds. In addition to the Strong and Merrill funds, the Internet Index fund, the StockJungle.com Pure Play Internet fund and the Zero Gravity Internet fund have liquidated. At the same time, the (MFITX)Monument Internet fund, 1999's top Net fund with a 273% gain, now has a new manager, a broader focus and a new name -- the Monument Digital Technology fund.

The Strong Technology 100 fund, which is run by Derek Felske and also started at the beginning of 2000, focuses more broadly on the tech sector. That said, it hasn't missed much of the past year's drubbing. The fund is down 45% over the past 12 months, trailing 59% of its peers, according to Morningstar.

At the end of the first quarter there were 29 funds out there with "Internet," "Net" or "e-commerce" in their names. At that point, before a somewhat bonny April, those funds were down nearly 60% over the previous 12 months. They also averaged just $106 million in assets, about four times less than the average tech fund.

These funds' narrow focus, woeful performance and modest assets all augur more liquidations and mergers down the road.

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