Many investors equate mutual funds with marriage, and stocks with dating, but there are some funds you just wouldn't bring home to meet mom.
It's no secret that nearly
200 stock funds jumped on the tech- and biotech-stock tigers and rode them to triple-digit returns last year. A month ago,
Saturday Screen looked at how the mercurial group was faring in the wake of the
Nasdaq Composite meltdown that started when the index peaked March 10. Now that the Nasdaq is charging back to life -- since the Memorial Day holiday it's up some 19% -- this week's Screen looks at the funds that have sprung back the highest since May 30. Here are the top-10 gainers since that day.
Needless to say, it's a high-octane list that's not for the faint-hearted. These funds have posted fat returns since Memorial Day because they own primarily high-priced, speculative stocks that typically go up (or down) in a hurry. Many of the stocks these funds buy are essentially home-run swings; and like many home-run hitters, these funds can strike out a lot, too. For instance, despite these eye-popping recent gains, the average fund in this group is still down more than 35% since the Nasdaq peaked on March 10. Many recent investors in these funds are probably underwater.
"It's an interesting list because generally speaking the funds crushed the worst when multiples contract [when stocks prices fall] are those that bounce back the strongest when things start going up again," says Scott Cooley, a senior analyst at
Morningstar.
Let's see what we have, shall we?
The strongest performer since Jan. 1 is broker-sold
(ORHAX Quote - Cramer on ORHAX - Stock Picks)Orbitex Health & Biotechnology. Since its launch last July, the fund has posted big numbers. In last year's fourth quarter alone, it gained 40.8% and it's rung up another 50% since Jan. 1. But those impressive numbers don't automatically mean the young fund run by Tim Bepler is a must-have, since it has had the wind at its back. Since Jan. 1, the
American Stock Exchange Biotechnology Index is up more than 45%.
Aside from that, you're essentially looking at a tech-fund smorgasbord -- no matter what these funds' labels might say. Would you expect a fund with a "growth and income" label, like no-load
(MGIQX Quote - Cramer on MGIQX - Stock Picks)Millennium Growth & Income, to have a 93% tech-stock stake? Well, it does. Aside from the Orbitex fund, the other nine average an 85.6% tech-stock weighting, according to Morningstar. No-load
(VWMDX Quote - Cramer on VWMDX - Stock Picks)Van Wagoner Mid-Cap Growth has the most modest tech belly, with about 50% of its money in the sector.
The list includes some of the industry's most famously aggressive tech investors.
Kevin Landis of Silicon Valley-based
Firsthand Funds might be the most highly regarded tech-stock picker these days. He and his colleagues use their tech industry experience and contacts to sniff out burgeoning tech companies, but the small-cap
(TIFQX Quote - Cramer on TIFQX - Stock Picks)Firsthand Technology Innovators fund, which made our list, is closed to new investors.
If you're interested in a Landis fund, you have plenty of other choices, including his no-load flagship
(TVFQX Quote - Cramer on TVFQX - Stock Picks)Technology Value, whose 60.7% annualized return over the past five years is tops of the more than 4,000 funds with five-year records. One pitfall is that he's not a secret. Investors have flooded him with cash, which could put a damper on returns down the road.
Then there's Garrett Van Wagoner, who manages his eponymous no-load Mid-Cap Growth and
(VWPVX Quote - Cramer on VWPVX - Stock Picks)Post-Venture funds. Van Wagoner is known for taking big bets on companies that he believes in and he's not afraid to dip into the private-equity market to get a piece of a company he likes -- Post-Venture is designed to focus partly on private companies.
That aggressive approach has led to King Kong-size returns. Post-Venture and Mid-Cap Growth rocketed up 237% and 126%, respectively, last year, according to Morningstar. But each fund has also lost more than 20% in a quarter before, too.
PBHG Funds, led by high-profile manager Gary Pilgrim, are known for their momentum style, meaning managers aren't afraid to pay high prices as long as the company's earnings are shooting through the roof. Predictably, that led to triple-digit returns last year; no-load
(PBTCX Quote - Cramer on PBTCX - Stock Picks)PBHG Technology & Communications and
(PBHEX Quote - Cramer on PBHEX - Stock Picks) PBHG Select Equity posted 244% and 161% 1999 returns, respectively. But then risk reared its ugly head. Since March 10, both funds are down more than 35%.
The funds also highlight the less obvious risk of aggressive funds: manager turnover. Select Equity manger Frank "Quint" Slattery recently bolted to start his own money management firm and the picks working now probably don't belong to new manager Michael Sutton, who took the reins on April 24. When these managers styles are in favor, their resumes bloom in a hurry and many make their way to the (literally) greener pastures of hedge funds and private-account management for well-heeled investors.
If you're willing to take on these funds' risks to swing for the seats, you should have a time horizon of at least several years and shouldn't commit more than 5% of your assets to any of them, says Morningstar's Cooley. That's because most investors already have significant tech and biotech weightings in more tame stock funds they already own. Even index funds like Vanguard's Total Stock Market Index, which tracks the
Wilshire 5000, a broad index of essentially every U.S. stock, have more than 35% of their assets sunk into tech stocks.
And if you do have your heart set on one of them, Cooley advises that you invest a set amount each month, which minimizes volatility. "That way you can actually make their volatility work for you," he says.
Ian McDonald
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