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Their recent dip notwithstanding, biotechnology funds have been a hit with investors so far this year. But for one of the most successful funds in the sector,

(FBIOX) - Get Fidelity Select Biotechnology Report

Fidelity Select Biotechnology, it may be a little too much of a good thing.

More than $2 billion in fresh investment went into Select Biotech during the first two months of the year, according to Boston fund consultant

Financial Research

. That's almost one-third of the total $6.5 billion that went into the broader category of health funds through the end of February.

Select Biotech, which ended 1999 with $1.6 billion in assets, swelled to $5.3 billion by the end of February. Though much of the increase is due to the rise in value of the fund's holdings rather than new investment, the question arises: Is Select Biotech getting too big?

It can be tough for a big fund to take significant positions in the small companies that drive much of the sector's growth without moving stock prices and reducing returns.

In fact, the fund has been focusing on biotech stocks with larger and larger market capitalizations over the years. Since 1994, Select Biotech's median market cap has exploded from $846 million to $9.6 billion. Certainly some of that is due to the sector's growth, but if the fund continues to bulge, it might have to invest its new money in big-cap stocks out of necessity.

"Given the fund's now very large asset base, it will be forced to move further up the market-cap ladder than it has," says Emily Hall, a

Morningstar

analyst who covers the fund.

It's hard to say whether the glut of new money is slowing down the fund yet, but its girth merits watching. The 15-year-old fund, the biotech category's graybeard, is bigger than a biotech fund ever has been, says Hall. Since it's in "uncharted territory," she says, it's hard to say when its size will start to slow it down.

The next largest biotech fund,

(FBDIX) - Get Franklin Biotechnology Discovery A Report

Franklin Biotechnology Discovery,

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closed to new investors on Feb. 7 at $500 million (though a flood of last-minute checks and subsequent appreciation have sent the fund's assets over $1 billion.)

In an all-too-familiar pattern, the steep inflows into the sector appear to follow hot performance. The

American Stock Exchange Biotechnology Index

posted a 111% return last year, and even after a 32% decline in March, it's still up 28% since Jan. 1.

How big is too big for Select Biotech?

The fund takes a broad a view of the sector. It holds some easily traded giants like

Amgen

(AMGN) - Get Amgen Inc. Report

and

Biogen

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among its top 10 holdings. But at year-end, half the fund's assets were invested in its top 10 holdings, none of which were small-cap.

Even if the amount of money coming in recently isn't too much, Hall adds that it has gushed in pretty quickly. That could make it tricky for a manager to put the money to work effectively. Manager Yolanda McGettigan has only been on the job since the start of February, but Fidelity says she's not buckling under all that green.

"Yolanda has effectively put money to work," says Fidelity spokeswoman Jessica Catino. The fund's cash position was a normal 6.7% as of Jan. 31, according to the most recent data Fidelity offers.

Of course, biotech's recent downturn could be whittling the fund's assets as we speak. Since

President Clinton

and British

Prime Minister Blair

announced March 14 that data from the

Human Genome Project

, a private/public effort to map human genetic makeup, would be free, biotechs have

sunk about 30%.

"It's been an awful crash since Clinton and Blair said that.

Fidelity might have taken in $2 billion, but I'm pretty sure they turned it into $1.5 billion pretty quick," says Jim Folwell, an analyst with Boston fund researcher

Cerulli Associates

.

Over the past month the fund's return is well into the red, down 34.4%. That trails almost every health fund, according to Morningstar.

Catino adds that Fidelity has no plans to close the fund.

Of course, closing the fund might not even assure an asset cap these days. After all, it didn't do much to keep Franklin's fund small.