Baidu, Netflix Propel Top Stock Funds
BOSTON (TheStreet) -- The five best-performing U.S. technology mutual funds are soaring for a second year in a row, reflecting investors' appetite for riskier stocks, including cloud-computing company Salesforce.com (CRM) - Get Report, Chinese Internet-search firm Baidu (BIDU) - Get Report and movie-streaming provider Netflix (NFLX) - Get Report.
The top-five performers have recorded returns of 37% to 58% so far this year. The average tech fund surged 62% last year after imploding 45% in 2008, which kicked off the deepest economic contraction in 80 years.
To be sure, performance has been volatile, as the average technology mutual fund, as tracked by Morningstar, is up 20% both this year and over the past three months. Still, that's double the increase of the
S&P 500 Index
of the largest U.S. companies for 2010.
Fund managers and investors say technology-company orders, which have picked up in the past three months, probably will stretch into next year, according to Morningstar technology-funds analyst Courtney Goethals Dobrow. From the start of the year through mid-August, technology stocks had fallen 3%, so the late-in-the-year rebound represents all of the year's gains.
The top performers this year have a run-and-gun management style, for the most part, as seen by their turnover rate, which is as high as 833%. A turnover rate of 100% means a fund's roster of stocks has changed completely once in a calendar year.
Technology-fund managers enjoy freedom in deciding what to buy, as seen in the makeup of their portfolios, which range from a big bet on the seemingly staid
Apple
(AAPL) - Get Report
, which revolutionized the world the with iPod, iPhone and iPad, to the upstart
Rovi
(ROVI)
, maker of the popular mobile-game application
Angry Birds
, and the clearly out-of-place Mexican restaurant chain
Chipotle Mexican Grill
(CMG) - Get Report
.
But most funds feed from the same trough. The most popular picks tend to be Apple, Salesforce.com, Baidu, Netflix, online retailer
Amazon
(AMZN) - Get Report
, Internet auctioneer
eBay
(EBAY) - Get Report
, software giant
Oracle
(ORCL) - Get Report
and Internet search company
(GOOG) - Get Report
.
Some of the big, and less agile, tech funds are putting in a good showing this year, especially the $1.3 billion
Allianz RCM Technology Fund
(RAGTX) - Get Report
. It's just out of the top five with a 33% return, coming on the heels of a gain of 57% last year.
Fidelity Advisor Technology Fund
(FADTX) - Get Report
, with $719 million in assets, is up 26% by riding Apple hard with a gigantic 15% allocation. Apple has gained 52%.
In inverse order, here are the five best-performing technology mutual funds this year. Performance data, provided by Morningstar, reflect returns through Dec. 9.
5.
RS Technology Fund
(RSIFX) - Get Report
, up 37% this year.
This $300 million fund is typical of the top-performing technology funds, with its roller-coaster performance: It gained 75% last year after losing 51% of its value in 2008.
The RS Technology Fund's portfolio of 66 stocks has a 128% annual turnover. Its top stocks are familiar:
Apple
(AAPL) - Get Report
, at 6%;
(GOOG) - Get Report
, at 4%, and down 5%; and
IBM
(IBM) - Get Report
, at 4%, and up 13%.
And then there are a handful of stocks with off-the-charts performances, including:
FS Networks
(FFIV) - Get Report
, up 170%;
Finisa
(FNSR) - Get Report
, which makes products used to aid high-speed data communications over local area networks, at 2%, up 184%; and
Acme Packet
(APKT)
, a provider of voice-over-Internet-protocol technology, up 413%.
4.
Jacob Internet Fund
(JAMFX) - Get Report
, up 40% this year.
This $47 million fund has gained 28% in the past three months. It holds 33 stocks, and 47% of fund assets are in the top 10 holdings.
Portfolio turnover is a relatively languid (at least for this sector) 52%. Up 72% last year, the fund lost 51% in 2008.
Its top holdings fit the technology-stock stereotype:
Apple
(AAPL) - Get Report
, at 7.6% of the fund,
(GOOG) - Get Report
, at 5%;
LogMeIn
(LOGM) - Get Report
, a provider of online solutions that enable remote access and support to computers and electronic devices connected to the Internet, at 4.7%, which is up 135% this year; and the self-described online network for geeks,
Geeknet
(GKNT)
, at 4.5%, and up 100% this year.
3.
Berkshire Focus Fund
(BFOCX) - Get Report
, up 48% this year.
This $28 million fund is a whirling dervish of trading, with a portfolio turnover of 833%. Manager Malcolm Fobes III, on board since the fund's inception in July 1, 1997, is certainly "focused," with 28 stocks and 73% of the fund invested in the top 10, but considers them long-term growth stocks.
Fobes has wide latitude in his picks, as evidenced by the fund's second-largest allocation (8%), to restaurant chain
Chipotle Mexican Grill
(CMG) - Get Report
. That can be forgiven as it has a return of 167% this year.
The rest of the top picks include all the usual suspects for a technology portfolio:
Apple
(AAPL) - Get Report
, which is driving fund returns at a 23% allocation;
Salesforce.com
(CPR)
, 7% of the fund, and a 101% return; Chinese Internet search engine
Baidu
(BIDU) - Get Report
, 6%, and with a 163% return; and
Netflix
(NFLX) - Get Report
, 5% of the fund and carrying a 247% return.
The fund's most profitable pick is
Acme Packet
(APKT)
, with a 387% return this year. The fund was up 84% last year, after losing 57% of its value in 2008.
2.
Saratoga Technology & Communications Fund
(STPIX) - Get Report
, up 49% this year. Last year, it gained 62% after tumbling 46% in 2008.
This year's returns have been boosted by its largest holding,
Apple
(AAPL) - Get Report
, at 5% of the fund, followed by
Oracle
(ORCL) - Get Report
, 4%;
Cognizant Technology Solutions
(CTSH) - Get Report
, 4%, and up 55% this year; while
Rovi
(ROVI)
, the owner of the
Angry Birds
iPhone/iPad application, is at 2.3% of the fund and up 83%.
The Saratoga Technology & Communications Fund's largest allocation is to cash, at 13%. It has a 33% software-sector weighting and a 31% hardware weighting.
1.
ProFunds Internet UltraSector Fund
(INPIX) - Get Report
, up 58% this year.
This $31 million fund has risen 38% in the past three months. Last year, the fund returned 128% after plummeting 62% in 2008.
It has relied on a highly leveraged, quick-on-the-draw trading strategy and is recommended for professional investors only. The portfolio turnover is a dizzying 622%.
Although
(GOOG) - Get Report
, at 7.3% of the fund, has hurt performance, its managers have made up for it with its rapid-fire portfolio turnover and some stellar stock picks including:
Salesforce.com
(CRM) - Get Report
, 3% of the fund and a 101% return;
Amazon
(AMZN) - Get Report
, 5%, 31% return; and the top gainer,
TIBCO Software
(TIBX)
, a developer of business-process-management and optimization software, 1.7% of the fund, and up 117% this year.
-- Written by Frank Byrt in Boston.
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