Internet Fund Managers Let Their Buying Do the Talking

They aren't calling a bottom, but they are buying.
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You're not gonna find many fresh Internet stock tips in this story. That's because Internet portfolio managers are busy buying and won't talk specifics until they're done.

The three largest Internet funds --

(MFITX)

Monument Internet fund, the

(WWWFX) - Get Report

Internet fund and

(MNNAX) - Get Report

Munder NetNet fund -- each are down more than 20% over the past four weeks.

TheStreet.com Internet Sector

index is down more than 23% during the same time period. A drop of more than 20% is a sign of -- dare we say it? -- a bear market.

But if that's a traditional rearview indicator, the moves of the Internet managers Wednesday, following four straight days of losses in the sector, could signal things are changing. All four Internet managers

TSC

interviewed Wednesday say they're buying -- at least selectively. The TSC Internet index was up 4% Wednesday.

While he wouldn't talk about new names in his portfolio, Alexander Cheung of the $50 million Monument Internet fund says he is adding to existing positions in

RealNetworks

(RNWK) - Get Report

,

Securities First Technologies

(SONE)

and

America Online

(AOL)

because their battered prices now look like bargains.

America Online closed at 115 Tuesday and dipped as low as 105 1/16 today before recovering to 120 5/16 at the close Wednesday. Still, that's a long way from its April high of 167 1/2.

"We haven't seen 115 for a while

in America Online," Cheung says. "It's not a bad price to get some in the pocket."

Cheung and other managers blame the recent

mood swing at the Internet party on some late gate crashers -- namely, the 59 Internet companies that have gone public in 1999.

"With more supply, we're going to go into a moment of

instability," Cheung says. "But I don't expect it to last for too long because the underlying Internet economy is growing so quickly."

Cheung, who preaches a three- to five-year time horizon for Internet stocks, says calling a bear market in the sector is a fickle exercise. "One week from now the market may be up 5%. Then the bear market is over," Cheung says. "A week or a month is just a blip for a five-year time horizon."

Paul Cook, lead manager of the $2 billion Munder NetNet fund, places some of the blame on the flood of IPOs. But he also says the selloff is only natural given the recent performance of Internet stocks.

"Twenty percent?" he asks. "A lot of these stocks are out more than that.

Amazon.com

(AMZN) - Get Report

is down 45%. Were you guys not expecting this?"

"The fourth quarter of 1998 and first quarter 1999 were just real strong," Cook says. "Hopefully some of this shakes out the short-term investors who are renting these companies and not buying them."

"The better question is, how much more do we have to go, or are we done?" asks Cook. "Or is there, as

influential

Morgan Stanley Dean Witter

analyst Mary Meeker might say, 15% or 20% more to go? I don't know the answer to that. It's not the first time we've seen Internet stocks trade off."

Like Cheung, Cook says he's seen buying opportunities in the last few days -- especially among the bluest of the Internet blue-chips.

"Amazon and America Online are looking much more attractive here," says Cook. "If there are Internet blue-chip stocks, I think now is the time you start looking for quality."

And he also says he's picked up some of those recent IPOs, but he's not saying which ones.

Ryan Jacob, manager of the $650 million Internet fund, was also toeing this line.

"We're long-term investors," Jacob says. "We've looked at this latest decline as an opportunity to add new positions and fill out existing ones."

He too sees a "number of names out there" that are good buys and isn't saying which ones. But he did offer a perspective on what that buying experience is like.

"I feel like a pinata. It's not easy to step in and buy aggressively when it looks like the world's coming to an end, but we've done it before; we're doing it now, and I'm sure we'll do it again in the future."

Lee Manzler, portfolio manager of the new

Analysts internet.fund, launched May 4, says he initially planned to stay away from marquee names like Amazon.com, America Online and

CMGI

(CMGI)

because of their high valuations. An absence of those names in his portfolio has limited the fund's loss to just 0.35% since its inception.

But with the market swooning, Manzler said he just couldn't ignore those kinds of companies any more.

"We just bought Amazon yesterday," Manzler says, and adds that he's looking at America Online, purely on price. "Initially I was bearish on AOL because of broadband issues," Manzler says. But "these are going to be historically low prices."