A Wide Net: What Constitutes an Internet Fund Varies Greatly

The definition of Net stocks and funds is as clear as mud.

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The Big Screen: Tech Funds

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Lessons From the Fall: A Special Fund Junkie Report

Case in point: The (BTBAX Quote - Cramer on BTBAX - Stock Picks)Amerindo Internet B2B fund and the (TBTBX Quote - Cramer on TBTBX - Stock Picks)Turner B2B E-Commerce fund launched at the end of May and June, respectively, last year. Given that the two funds focus on a slice (business-to-business) of a subsector (Net stocks) of a sector (technology), you'd think they'd be pretty similar.

You'd think so, but you'd be wrong.

The Amerindo fund, run by Alberto Vilar and Gary Tanaka, has more than half its money in the battered but expected likes of Akamai Technologies(AKAM Quote - Cramer on AKAM - Stock Picks), which helps companies speed up their sites and guard against crashes, and Art Technology Group (ARTG Quote - Cramer on ARTG - Stock Picks), which makes e-commerce software. The fund is down more than 48% since Jan. 1, trailing 74% of its peers, according to Morningstar. Conversely, the Turner fund, where Chris McHugh and John Hammerschmidt call the shots, is down only 20% over the same period, topping its average competitor.

The reason: At the end of the first quarter the Turner fund had more than a quarter of its money sunk into a more eclectic top-five holdings that includes conglomerate General Electric (GE Quote - Cramer on GE - Stock Picks) and bookseller Barnes & Noble(BKS Quote - Cramer on BKS - Stock Picks).

It's far too early to pass judgment on these young, niche funds, and a broader tech fund probably makes more sense for even the most rabid Net bulls anyway. Rather, the bottom line here is that these funds prove that the definition of Net stocks and funds is a moving target. These two funds' divergent takes on a seemingly small corner of the market prove -- admittedly, to the extreme -- why it's vital to look under a fund's hood to avoid any surprises down the road.

"When you see a fund with a buzzword like B2B, what does that really mean?" asks Morningstar analyst Chris Traulsen. "For some folks that's infrastructure companies, while others might say it's the pure B2B exchanges or just the companies buying B2B software. You'd better take a close look at any fund's portfolio holdings before you invest."

Maybe nothing proves that more than the divergent returns earned by investors in these young funds and the B2B Internet HOLDRs(BHH Quote - Cramer on BHH - Stock Picks), an ETF, or exchange-traded fund, offering investors access to a fixed basket of stocks like bellwether B2B software shops Ariba(ARBA Quote - Cramer on ARBA - Stock Picks) and Commerce One(CMRC Quote - Cramer on CMRC - Stock Picks).

Over the past 90 days the ETF is down more than 31%, compared with an 11% loss for the Amerindo fund and a 23.1% gain for the Turner fund, according to Morningstar and Baseline/Thomson Financial.

Birds of a Different Feather These funds might have the same labels, but their returns show that they're different animals
	3-Month Return	YTD Return	1-Year Return
(TBTBX Quote - Cramer on TBTBX - Stock Picks)Turner B2B E-Commerce	23.1%	-20.0%	N/A
(BTBAX Quote - Cramer on BTBAX - Stock Picks)Amerindo Internet B2B	-11.0	-48.3	-57.1%
B2B Internet HOLDRs(BHH Quote - Cramer on BHH - Stock Picks)	-31.5	-63.3	-83.8
Nasdaq Composite	-20.1	-10.3	-42.3
Avg. Tech fund	-0.2	-21.3	-48.6
S&P 500	-7.4	-4.2	-14.0
Source: Morningstar and Baseline/Thomson Financial.

You'd expect this kind of divergence among diversified stock funds where each manager has the entire market to choose from. Last year, for instance, the tech-stuffed (JAVLX Quote - Cramer on JAVLX - Stock Picks)Janus Twenty fund rode the sagging Nasdaq down to a 32.4% loss, while the (LCPAX Quote - Cramer on LCPAX - Stock Picks)AIM Large-Cap Opportunities fund used a long-short strategy to ring up a 30.4% gain. Both funds have large-cap growth labels, but their broad palettes allowed for divergent portfolios and returns.

But now sector funds typically have similar leeway, particularly when it comes to the sprawling tech bin. The average tech fund is down 21.3% so far this year, but the range of returns is broader than you might expect. Funds like the (SLMCX Quote - Cramer on SLMCX - Stock Picks)Seligman Communications & Information and (WWWFX Quote - Cramer on WWWFX - Stock Picks)Kinetics Internet have ridden picks like IMS Health(RX Quote - Cramer on RX - Stock Picks) and AT&T Liberty Media Group to actual gains this year.

"Even with sector funds you need to look closely [at holdings] because a manager's interpretation of the sector can be very different from others' and your own," says Traulsen.

Tech Spectrum Tech funds have a wide range of sectors to pick from, which leads to a wide range of returns
Top-Five Tech Funds for 2001
Tech Fund	YTD Return
(SLMCX Quote - Cramer on SLMCX - Stock Picks)Seligman Communications & Information	18.4%
(WWWEX Quote - Cramer on WWWEX - Stock Picks)Kinetics Internet Emerging Growth	8.9
Fidelity Advisor Electronics	8.0
(MATFX Quote - Cramer on MATFX - Stock Picks)Matthews Asian Technology	6.5
(WWWFX Quote - Cramer on WWWFX - Stock Picks)Kinetics Internet	2.9
Avg. Tech fund	-21.3
Bottom-Five Tech Funds for 2001
(INPIX Quote - Cramer on INPIX - Stock Picks)Internet UltraSector	-56.1
(BTECX Quote - Cramer on BTECX - Stock Picks)Berkshire Technology	-49.2
(BTBAX Quote - Cramer on BTBAX - Stock Picks)Amerindo Internet B2B	-48.3
(VTFAX Quote - Cramer on VTFAX - Stock Picks)Van Kampen Technology	-47.3
(VWTKX Quote - Cramer on VWTKX - Stock Picks)Van Wagoner Technology	-44.7
Avg. Tech fund	-21.3
Source: Morningstar.

At the same time, funds like (BTECX Quote - Cramer on BTECX - Stock Picks)Berkshire Technology and the Amerindo B2B fund have followed falling tech angels like Juniper Networks(JNPR Quote - Cramer on JNPR - Stock Picks), Ariba and i2 Technologies (ITWO Quote - Cramer on ITWO - Stock Picks) to losses north of 40%.

The situation is even dicier if you limit your focus to the bruised Net-fund pack. Given the nebulous Net tag, companies as different as Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) and Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) have turned up in Net-fund portfolios. So far this year the best-performing Net funds -- tech funds by Morningstar's definition -- haven't owned much tech. The Kinetics Internet fund, for instance, is up 3.1% so far this year with just 37% of its money in tech stocks.

The Amerindo B2B fund, the second-hardest hit Net fund this year, had more than 87% of its dough in the tech sector at the start of the year.

Net Funds Cast a Wide, Well, Net The definition of a "net stock" is in the eye of the beholder, leading to divergent returns among the troubled Net pack
Top-Five Net Funds for 2001
Net Fund	YTD Return
(WWWEX Quote - Cramer on WWWEX - Stock Picks)Kinetics Internet Emerging Growth	9.2%
(WWWFX Quote - Cramer on WWWFX - Stock Picks)Kinetics Internet	3.1
(STECX Quote - Cramer on STECX - Stock Picks)STI Classic E-Commerce	-2.7
(RIAFX Quote - Cramer on RIAFX - Stock Picks)RS Internet Age	-4.4
(WWWIX Quote - Cramer on WWWIX - Stock Picks)Kinetics Internet Infrastructure	-6.5
Avg. Tech fund	-21.3
Bottom-Five Net Funds for 2001
ProFunds Internet Ultra Sector	-55.3%
(BTBAX Quote - Cramer on BTBAX - Stock Picks)Amerindo Internet B2B	-48.3
(TEFQX Quote - Cramer on TEFQX - Stock Picks)Firsthand E-Commerce	-38.9
(SNETX Quote - Cramer on SNETX - Stock Picks)Strong Internet	-35.1
(STNAX Quote - Cramer on STNAX - Stock Picks)SunAmerica Focus TechNet	-33.2
Avg. Tech fund	-21.3
Source: Morningstar.

The upshot from this exercise seems clear: The selling point of mutual funds is that they give you cheap access to a broad portfolio of stocks, but you should always pick through a fund's portfolio to make sure you know and like what you're buying. Even if it's a fund focusing on a sector or just a slice of a sector.