Funds Notebook: NetNet Goes Overseas

Munder Funds, which runs the $7.2 billion (MNNAX Quote)NetNet fund -- far and away the largest Internet fund -- plans to launch a foreign version, International NetNet, according to a Securities and Exchange Commission filing.

The fund will invest in foreign Internet companies of any size, and can invest "without limit" in foreign initial public offerings, according to the fund's prospectus.

Munder hopes to launch the fund in April. It needs to move quickly because rival Kinetics Asset Management, adviser of the (WWWFX Quote)Internet fund, launched four new Net funds this month, including the Internet Global Growth fund.

But Munder's new fund probably isn't a simple case of "me-too" marketing. Several fund managers and analysts say overseas Net stocks are the next new thing.

"Now people are interested in tapping into nascent Net markets in Asia and Europe," says Erik Olbeter, a senior Internet analyst with Charles Schwab(SCH Quote). Olbeter says the number of questions he fields on foreign Net stocks has increased fivefold recently.

Modest Internet penetration in Europe and Asia, combined with cheaper valuations, leaves many U.S. fund managers and analysts thinking they'll have to pack a passport to find the next Yahoo!(YHOO Quote). But it's not as simple as finding an America Online (AOL Quote) or Yahoo! clone overseas. U.S. companies with foreign operations might not be the answer either.

"Winners won't necessarily just replicate the same models that worked here," says Olbeter.

AOL, for example, lags competitors in England and Latin America because its fees and services don't take into account local conditions, such as per-minute local-phone charges that aren't a factor in the U.S.

The new fund will be managed by an unnamed committee of portfolio managers, according to the filing. High profile NetNet manager Paul Cook and his team will be part of the crew that runs the new fund, according to a Munder official.

The fund's class A shares will carry a 5.5% sales charge; class B shares will carry a 5% maximum back-end sales charge that is levied when shares are sold. A shares' 1.75% expenses are in line with the average tech fund (1.77%), but the 2.50% expenses on B and C shares are high, according to Morningstar. Class B shares convert to cheaper A shares after six years.

The fund also has the option of offering boosted commissions to brokers for selling the fund, a promotional technique known as full dealer reallowance. But given brokers' and investors' ample appetite for NetNet shares, Munder probably won't need to offer higher payouts to promote the fund.

NetNet took in $3.1 billion of the $4.6 billion that went into Net funds last year through Nov. 30, according to the most recent data from Boston fund-watcher Financial Research.

A Little Cold Water From the SEC

Nearly 170 mutual funds posted returns over 100% last year, and on Monday, the Securities and Exchange Commission did what it could to bring new or euphoric fund investors back to earth.

The commission is worried that some investors will dump their financial plan to grab shares of 1999's hottest performers, like (MSCGX Quote)MAS Small Cap Growth (up 314%), (WPJPX Quote)Warburg Pincus Japan Small Company (up 266%) or (ATCHX Quote)Amerindo Technology (up 249%), without considering their risks.

One of the oldest and truest rules of thumb in the fund world is that investors chase hot performance -- and hot funds rarely stay hot for long. Maybe the most infamous example of a hot fund that cooled is (AHERX Quote)American Heritage. The fund finished No. 1 in 1997 with a 75% return, but investors who piled in have paid dearly. The fund suffered steep losses of 61.2% and 31.6% in the next two years. Ironically, the fund is currently leading the pack again, but most 1997 investors have already hit the exits.

Beyond favoring a "buy and hold" strategy, SEC Chairman Arthur Levitt urges investors to scrutinize a fund's sales charges, expenses, tax efficiency and volatility before investing.

In general, the advice is good, but since it's not anything investors haven't heard many, many times before, it's doubtful these tired tenets will keep them from flocking to hot funds once again.

Biotech Fund Closing Postponed

Now that biotechnology stocks are on fire, Franklin Templeton Funds has postponed the planned closing of its (FBDIX Quote)Biotechnology Discovery fund to allow a few hundred million more dollars to flow in.

Until last week, the two-and-a-half-year-old fund planned to close to new investors when assets hit $150 million. But now that biotech stocks are smoking and money is pouring into the fund, the portfolio's manager, Kurt von Emster, says there are plenty of places for him to put that money to work.

The American Stock Exchange Biotechnology Index was up 150% for the past year at Monday's close. Last year, the fund posted a 97.9% return. On Sept. 30 the fund had less than $100 million in assets; the figure had increased to $387 million at Monday's close. Franklin says it will close the fund when assets hit $500 million.

So, are there really that many more opportunities?

"On the surface it seems like a ploy to grab money. But a few hundred million bucks is small potatoes to a firm that size, even though they've been losing assets left and right for a couple of years," says Jim Folwell, a consultant with Boston fund-researcher Cerulli Associates.

Given the fund's current asset level, it could be shutting its doors in February.

New From Nuveen

Nuveen Investments launched two new funds Tuesday, Innovation and International Growth.

The muni-bond specialist has hired $6.1 billion institutional stock manager Columbus Circle Investors to run the funds. Innovation will be a diversified technology fund, and international growth will focus on overseas mid- and large-caps.

Tony Rizza will manage Innovation and Clifford Fox will run the international fund. Rizza managed (PIVAX Quote)Pimco Innovation fund from 1994 to 1999. The fund outpaced the tech fund each year during his tenure.

The new funds aren't yet listed on the Nuveen Web site.