With all the volatility hitting U.S. shares, now may be the perfect time to switch to something safe like Chinese Internet stocks.
"Most tech companies have no oil exposure, are cash rich, and have very little debt so they are not exposed to the U.S. market's credit problems," says Ryan Jacob, portfolio manager for the $100 million
Jacob Internet fund. "The Chinese Internet companies we own are profitable and most trade at reasonable valuations considering the Chinese economy is growing at a double-digit rate, has a growing middle class and is adding a phenomenal amount of Internet users each day."
Jacob's fund, which skyrocketed during the tech bubble only to come crashing back to earth, is up 2.2% this year and has returned an average of 37.5% annually over the past five years as the tech market has rebounded. About 2% of the fund is invested in
( TSCM), the publisher of this Web site.
Jacob says almost 20% of the fund is allocated to Chinese Internet companies, his top picks being Internet portals
, which combine to make up more than 9% of the fund.
"Sohu and Sina are traditional portal models like
and their ad-based revenue is picking up because of the 2008 Beijing Olympics," says Jacob. "And while the Olympics may not be a huge deal for American sports fans, it's the Superbowl 10 times over for them."
Want more? Check out TheStreet.com TV video. Gregg Greenberg gets a read on Chinese Internet stocks from Ryan Jacob.
The potential downside to all the Olympics buildup, Jacob warns, is that it could result in a "Y2K-like hangover" for the companies after the torch is extinguished. But for now, "the pre-Games spending is strong and it's full steam ahead."
As for high-flying Chinese search engine
, Jacob says the fund recently trimmed its position mostly due to -- again, seriously -- "a lofty valuation." Baidu trades at 55 times forward earnings, compared with 30 for Sohu and Sina.
"Baidu has no issues with its market position, it is still the leader," says Jacob. "We just thought it was prudent to prune our position." Baidu is up 64% over the past three months and 76% year to date.
Jacob says U.S. Internet giants
and Yahoo! have had difficulty cracking the Chinese market because "it's a larger cultural divide than breaking into Europe."
In order to gain some traction on the Chinese mainland, Yahoo! is counting on its 40% stake in Chinese e-commerce company
Speaking of Yahoo!, Jacob's fund also owns almost a 5% stake in the beleaguered company. Despite its recent struggles, he is confident Yahoo!'s fortunes will soon turn now that co-founder Jerry Yang has returned to the CEO spot.
"They have not been as acquisitive as they should be and we saw that when they decided not to buy Facebook," says Jacob. "And they are not pushing the boundaries of technology like Google. Jerry Yang will be more aggressive on both fronts -- he has to be."
As for Google, another hefty fund position, Jacob believes it remains a classic growth story whose true competitor is based in rainy Redmond, Wash., not Sunnyvale, Calif.
"It's not a zero-sum contest between Google and Yahoo!," says Jacob. "Google is a search engine and Yahoo! is primarily a media portal. If Yahoo! killed the search engine tomorrow they would not go out of business. The same can't be said for Google."
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.