I Own What?! Some Tech Funds Don't Own Much Tech

When you buy a tech fund, you expect it to own tech stocks. But that's not always a safe bet.

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In fact, sector funds can range pretty far afield, as we saw in last week's I Own What!?, where we dug up a couple of financial sector funds that owned the likes of Cisco and Intel. This week, we've found the obverse -- a dozen tech funds with less than half their money invested in the tech sector.

It's hard to blame diversified-fund managers for passing up tech stocks, given the tech-laden Nasdaq Composite's 45% fall over the past year. Surprisingly, though, many funds bearing tech labels have been able to do the same, owing in part to the Stretch Armstrong-like flexibility of some fund charters.

While this tech-shy approach has helped many of these funds lose less than their average peer over the past year, it poses potential problems, too. Investors who shoehorned these funds into a carefully diversified portfolio, naturally assuming they would own tech stocks, are left with less tech exposure than they wanted. For now, that's good. But if and when the tech sector gets off the canvas, these funds probably will be left in the dust.

Tech in Name Only These dozen "tech" funds have most of their money elsewhere
Tech Fund	Percentage of Assets in Tech Stocks	One-Year Return
(WWWGX)Kinetics Internet Global Growth	1.1%	-43.3%
(WWWIX)Kinetics Internet Infrastructure	12.4	-36.7
(WSTCX)W&R Science & Technology	25	-23.8
(UNSCX)Waddell & Reed Adv Science & Technology	26.2	-24.4
(WWWEX)Kinetics Internet Emerging Growth	35.4	-37.2
Alleghany/Veredus SciTech	37.3	-15.1
(WWWFX)Kinetics Internet	39.7	-30.4
(IMLLX)iMillennium	39.7	-64.3
(MNIBX)Munder International NetNet	41.7	-62.7
(EIICX)Enterprise International Internet	44.4	-59.2
(GITSX)Goldman Sachs Internet Tollkeeper	48.4	-47.7
(IFODX)Morgan Stanley Information	49.1	-54.4
Avg. Tech fund	78.6	-52.8
Source: Morningstar. Holdings through most recent portfolio reports. Returns through Aug. 1.

To be fair, seven of the funds on our list are Net funds, the definition of which is far from settled. The (WWWIX)Kinetics Internet Infrastructure fund had just 12% of its money in tech stocks at the end of the first quarter, according to Chicago fund-tracker Morningstar. The firm's flagship (WWWFX)Internet fund describes its focus as "equity securities of U.S. and foreign companies engaged in the Internet and a broad range of Internet-related activities." Translation: This fund can own Cisco, or it can buy shares of a Malaysian toy store that plans to launch a Web site.

At the same time, the $2.3 billion (MNNAX)Munder NetNet fund, the largest Net fund in the nation, had more than 70% of its money in tech stocks at the end of May. And Merrill Lynch's Internet HOLDRs(HHH), an exchange-traded basket of Net stocks, has 84% of its assets in stocks with tech labels.

The tech-light nature of the (WSTCX)W&R Science & Technology fund and Alleghany/Veredus SciTech fund shows why you need to look at a fund's portfolio before you buy shares: The funds had 39% and 50% of their money in health care stocks, respectively, according to their most recent portfolio reports.

Most tech funds' prospectuses give them this leeway by defining a tech company as any firm that uses or stands to benefit from technology. Few funds stretch the boundaries, but some clearly do.

So what do these funds own? Well, we tossed their portfolios in a pot, sifted out their cumulative top-10 holdings and found a decidedly untechie list. Among their top 10, only AOL Time Warner (AOL) gets a tech label from Morningstar. The others are primarily in the telephone and TV businesses, with market researcher IMS Health (RX) in there, too.

Tech Shmeck The cumulative top-10 picks of our 12 tech-light tech funds aren't that techie at all
Stock	Percentage of Assets	One-Year Return
Cablevision	1.9%	2.1%
Commonwealth Telephone Enterprises	1.9	0
IMS Health	1.6	45.2
AT&T Liberty Media	1.5	-25.1
Telephone & Data Systems	1.4	-1.6
America Online Time Warner	1.3	-11.7
Groupe AB	1.2	55.6
Vodafone AirTouch	1.1	-47.5
Grupo Televisa	1.1	-40.8
SBC Communications	1.1	3.6
Source: Morningstar. Holdings as of most recent portfolio reports.

Given this eclectic and low-tech blend of stocks, it's no surprise that these funds have outperformed their peers during the tech slaughter. On average they've lost 42% over the past 12 months, about 10 percentage points less than the average tech fund, according to Morningstar.

But keep in mind that they may not enjoy the ride whenever tech shares start to trudge north again. Since Jan. 1, the nation's five-biggest tech stocks -- Microsoft, Intel, AOL, IBM and Cisco -- are up 13.2% on average. These funds average a 1.2% gain over the same stretch.

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