G-Force: 10 Once-Hot Funds Ravaged by Gravity

Wherever he is, Gary Coleman can relax.

That's because this "Where are they now?" Big Screen isn't chasing him down. Managers of 1999's hottest stock funds, however, might want to lie low.

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Remember 1999, when the Nasdaq Composite rang up an 86% gain and the average tech fund returned a jaw-dropping 135%? Managers of "diversified" growth funds routinely bet more than half their money on tech, and more than 180 funds returned more than 100% -- a pack we dubbed the Century Club. For perspective, consider that between 1990 and 1998 -- great years to own stocks -- there wasn't a single year in which more than 10 funds gained 100%.

Of course, 1999's eye-popping gains became the past two years' staggering losses, with the Nasdaq down more than 51% since 2000. And unfortunately, most of the money invested in these funds didn't arrive until those gains were already history: A record $309 billion gushed into stock funds in 2000. Now these funds starkly illustrate the folly of chasing performance at the expense of diversification. So let's catch up with them; crash-and-burn funds are fun to watch, if hell to own.

Falling Down

The top-10 funds from 1999, an eclectic and aggressive gaggle focused on tech or Japanese stocks, posted an average 311% gain that year but lost nearly 46% the next. Their favorite stocks, such as networkers Juniper(JNPR Quote) and Ciena(CIEN Quote), have lost more than 60% of their value over 12 months.

A Thumped Top 10 The highest-flying funds in 1999 have, well, crashed
Fund	1999 Return	1-Year Return
(NGTIX Quote)Nicholas-Applegate Global Technology	493.7%	-67.7%
(WJSAX Quote)CS Warburg Pincus Japan Small Company	329.7	-54
(MSCGX Quote)MAS Small Cap Growth	313.9	-34
(VWEGX Quote)Van Wagoner Emerging Growth	291.2	-69.3
(NEVIX Quote)Nevis	286.5	-60.5
(MFITX Quote)Monument Digital Technology	273.2	-68.8
(DRAPX Quote)Driehaus Asia Pacific Growth	264.5	-29.8
(WPJAX Quote)CS Warburg Pincus Japan Growth	260.3	-52.9
(ATCHX Quote)Amerindo Technology	248.9	-68.3
(PBTCX Quote)PBHG Technology & Communications	243.9	-72.4
S&P 500	21	-18.4
Source: Morningstar. Returns through July 9.

As you can see, these funds are mercurial performers in aggressive categories, tumbling more than 57% over the past year, on average. Only the (DRAPX Quote)Driehaus Asia Pacific Growth fund has outperformed its average peer over the past 12 months, according to Morningstar.

This stocklike volatility makes it tough to make money. If you'd had the uncommon prescience to invest $10,000 in a portfolio of these 10 funds at the start of 1999, you would still have been up more than 70% at the end of May, according to the most recent data from Morningstar.

But because most of these funds rang up their gains with modest assets, it's more realistic to consider the fate of someone who made the same investment at the start of 2000, when these funds were topping scoreboards. At the end of May, you would have been left with less than $4,300 -- a 57% loss.

The Bottom Line What you'd have left after investing $10,000 in these top-10 funds
Jan. 1, 1999	Jan. 1, 2000
$17,088.70	$4,269.06
Source: Morningstar. Data through May 31.

At many of these funds, management has been as unstable as performance. With 1999's gaudy gains on their resumes, many skippers took new jobs. Aaron Harris, one of the folks running the top-dog (NGTIX Quote)Nicholas-Applegate Global Technology fund, was lured away in March 2000 to Villanova Capital to run the (NMGAX Quote)Gartmore Millennium Growth fund.

After leading Net funds with a 273% gain in 1999, the (MFITX Quote)Monument Digital Technology fund lost its manager, Alex Cheung, that same month; it later gave up its strategy and name. This past March, Jeff Wrona, manager of the (PBTCX Quote)PBHG Technology & Communications fund, bolted, too. Both Wrona and Cheung founded their own hedge funds.

Moves Poorly for a Big Man

Many of these funds are obscure and some are sold only to institutional investors, so we can take some solace that few individuals were burned by them. But when we look at the biggest funds in the Century Club, we find plenty of reason to be glum again. In sum, more than $60 billion resides in these funds' coffers. The funds gained 136% on average in 1999 and have lost more than 52% over the past year, according to Morningstar.

Slumping Heavyweights The biggest funds that cracked the Century Club in 1999 have taken a beating, too
Fund	1999 Return	Return since Jan. 1, 2000
(FDEGX Quote)Fidelity Aggressive Growth	103%	-56.5%
(PRSCX Quote)T. Rowe Price Science & Technology	101	-55.3
(ACEGX Quote)Van Kampen Emerging Growth	103.7	-41.5
(FSELX Quote)Fidelity Select Electronics	106.6	-50.6
(TVFQX Quote)Firsthand Technology Value	190.4	-57.1
(JAENX Quote)Janus Enterprise	121.9	-54.3
(JAOLX Quote)Janus Olympus	100.1	-45.2
(JAGTX Quote)Janus Global Technology	213.5	-59.4
(FSPTX Quote)Fidelity Select Technology	131.7	-56.1
(RSEGX Quote)RS Emerging Growth	182.6	-46.4
S&P 500	21	-18.4
Source: Morningstar. Returns through July 9.

As you might imagine, these funds got big by staying ahead of their peers over time, and most still have solid long-term records. The $13.2 billion (ACEGX Quote)Van Kampen Emerging Growth, the $4.3 billion (JAOLX Quote)Janus Olympus and the $3.1 billion (RSEGX Quote)RS Emerging Growth funds have all beaten more than 90% of their peers over three and five years, according to Morningstar.

Still, their ride over the past three years has been rough. A $10,000 investment in a portfolio of these 10 funds at the start of last year would've been worth less than $5,900 at the end of May.

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Diminishing Returns The results of a $10,000 investment in the biggest Century Club funds
Jan. 1, 1999	Jan. 1, 2000
$13,644.66	$5,866.67
Source: Morningstar. Data through May 31.

And there are some shaky names on this list, too. The $6.1 billion (PRSCX Quote)T. Rowe Price Science & Technology fund, the nation's largest tech fund, seems winded compared with its peers. The fund, managed by Chuck Morris since 1991, has posted a 6.6% annualized gain over the past five years. That trails the S&P 500 by more than 7 percentage points and lags behind 82% of its peers, according to Morningstar.

Thanks in part to its 54% fall over the past year, the $4.6 billion (JAENX Quote)Janus Enterprise fund trails its peers over the past one, three and five years. The fund's 8.9% annualized gain over five years trails the average mid-cap growth fund and lags behind the S&P 500 by more than 5 percentage points.

Then there's the $11.3 billion (FDEGX Quote)Fidelity Aggressive Growth fund, which has sputtered since manager Erin Sullivan dropped the reins to start her own hedge fund on Valentine's Day last year. Bob Bertelson took over, and things haven't gone well. Over the past year the fund is down 57%, leaving it 39 points behind the S&P 500 and trailing 97% of its large-cap growth fund peers.

If you've hopped on these funds, or funds like them, just in time for their sails to slacken, check out our guide to building a diversified portfolio and the model portfolios we've put together. Like this one, those stories might help you steer clear of the fund world's fading stars.