Rocky Mountain High: Sector Funds Propel Invesco to Forefront

The Denver-based firm ranked No. 3 in sales for January and February.
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Like the snow, the money keeps falling on Denver.

Not only has

Janus

become the Mile High City's cash magnet, surpassing giants like

Fidelity

and

Vanguard

, but recently

Invesco

has nudged its way into the limelight, too.

That's not to say the No. 22 fund company's $40 billion in assets is in a league with No. 5 Janus' $210 billion, but investors are starting to take notice of Invesco's lineup of sector funds, which come with looser restrictions on active trading than some others.

In the first two months of the year, this unit of London's

Amvescap

(AVZ)

took in $3.3 billion, ranking third among mutual fund families, according to

Financial Research

of Boston. That's a marked improvement over the same period last year, when $49 million walked out the door.

Such an amount pales in comparison to the $19 billion hoard that cross-town rival Janus snatched during January and February. Still, the feat is remarkable if you consider that Invesco has doubled its asset base in the last year.

Even more notable is that Invesco has managed to attract more money than industry heavyweights Fidelity, Vanguard or

MFS Investment Management

in the past few months.

Why are investors so interested?

"They have all the sector funds that people want,'' says Ray Libertore, associate research director with Financial Research.

As one of the biggest and oldest purveyors of sector funds, Invesco has been along for the ride as investors have taken a liking to portfolios concentrating on some of the high-growth areas of the market, such as technology, health care and telecommunications -- all covered by Invesco sector funds.

In February, investors dumped $10.7 billion in technology, the best fund category. They also handed over $8 billion to mid-cap funds and $4.2 billion for health and biotech offerings, all corresponding with Invesco's top sellers.

But Invesco has lured those dollars with performance. Its

(FTCHX) - Get Report

Technology II fund ended 1999 up 145%, beating its peers by 10 percentage points. The

(ISWCX)

Telecommunications portfolio was up 144% last year, more than 70 percentage points above the average communications fund. A mid-cap offering,

(FIDYX)

Dynamics, also posted solid numbers in 1999, up 71.8%.

Not surprisingly, those funds were the biggest money gainers at Invesco, Libertore says. For the first two months of the year, they accounted for the lion's share of new investments.

Overall, 40% of Invesco's assets are in its sector funds. The firm also offers 23 other funds, mainly growth portfolios.

Some of Invesco's earliest sector funds made their debut in the mid-1980s, when most of its competition came from Fidelity's Select series of highly focused portfolios. Now there are 302 sector funds from a range of companies. Many of the new funds coming to market in recent months have focused on the highflying technology and biotech areas.

"Investors are finally interested in sector funds," says Richard Healy, the firm's senior vice president of marketing. "They want concentrated portfolios, but don't want to pick the stocks themselves."

The recognition took a long time in coming, Healy acknowledges. Invesco suffered from weak marketing. "As a firm,

marketing was never our strong suit, investment was," he says.

Until last year, asset growth was relatively flat at Invesco. It was only in mid-1999 that investors started to discover the funds. It's not just market timers who have caught the sector bug.

"They're trading vehicles that I use to try to enhance returns," says Newton, Mass., planner Gayle Buff about her 5% to 10% allocation to specific sectors.

Though Invesco says it discourages market timing, it has a fairly generous policy for active traders of its sector funds. It charges no redemption fees and allows four "round-trip'' trades in the funds each year. For example, an investor could move out of Technology II, into

(ISWCX)

Telecommunications, then back into Technology II four times within 12 months, a spokeswoman says.

In contrast, Fidelity charges a 0.75% redemption fee for investments held under 29 days and a 3% one-time sales charge. After 30 days, investors pay $7.50 to get out of its sector funds. And even though Fidelity's 39 sector funds are priced hourly through the trading day (Invesco's aren't), that doesn't mean the firm encourages timers, a spokeswoman says.

Also helping to bring in the money is Invesco's foray into paperless applications on its Web site. With a paperless application, investors can become shareholders within hours, often by the market close. Funds are transferred electronically from a bank account. Though the firm won't say what percentage of new money comes via the Web, Jon Pauley, vice president of electronic commerce, calls it "significant.''

"Our Web traffic has gone up 600% to 700% since we put it up" last October, he says, adding that in March alone, the firm signed up 7,600 new accounts.

Of course, all of this could be tested if investors take a suddenly negative view toward highly specialized sector funds. "Certain sectors come and go, but we think we have offerings that cover all areas of the market that an individual investor may have exposure to,'' Healy says.