Want to start a tech fund? Seriously, everybody's doing it.
Investors chasing recent hot returns from tech stocks and fund companies chasing investor dollars have led to an
unprecedented number of tech-fund launches this year from fund companies large and small. At the start of 1998 there were 40 tech funds. Last year, when the average tech fund rang up a jaw-dropping 135% return, 25 more rolled out. Already this year, 46 more have launched. (Here's the
list so far -- there may be even more since new funds often don't show up in databases for several months and at least 13 more are filed with regulators.)
The reason for the explosion: filthy lucre. Last year, investors stuffed $33.5 billion into tech funds and they've invested another $36.3 billion so far this year, even though the average tech fund is basically flat for the year. Before 1999, the category's calendar-year record in-flow was $4.4 billion (set in 1995). Fund companies of all types have rushed to market with tech portfolios to get a piece of the action. For investors, that's good and bad.
"The plus is that it gives investors more choices. The flip side is that you really need to look carefully at these funds and the companies launching them because there are real risks in such a volatile sector," says Chris Traulsen, the senior analyst who focuses on tech funds at
So, this week the
huddles with Traulsen to see which of this year's tech-fund rookies might merit watching. With such a long list of funds and such a profound paucity of portfolio and performance information, we picked these 10 because they're offered by fund companies with a solid research staff and/or a demonstrated acumen for picking tech and growth stocks.
First, a caveat: This is not a buy list. It's tough to glean which of a gaggle of new funds will shine and which will stumble. Rather, this is a watch list whittled from the vast new crop, which should come in handy because less than a third of the tech funds out there have a three-year record, according to Morningstar.
The idea of looking for funds launched by shops with a demonstrated growth/tech-stock picking skill makes sense because many companies not historically known for being tech savvy have rolled out tech funds lately just to capture assets.
"Forty-six new funds in a specialty category in 2000? Is this a joke? It looks like a classic land grab. Fund companies saw
steep in-flows and if they didn't have one, they needed one," Traulsen says. He points to tech funds from decidedly low-tech shops like
Fifth Third Bank
as examples of dubious Johnny-come-latelies.
While he admits that funds from shops like these could turn out to be winners, he'd focus on veteran shops. Like whom?
Aggressive investors might monitor
PIMCO Global Innovation,
American Century Technology
PBHG Global Technology & Communications
That's because each of these fund companies is known for having solid analyst benches and/or running high-octane funds in a style that it teaches all its staffers.
"They manage money in a consistent style. They hate the word, but I'd describe them as momentum shops," says Traulsen. While that approach is high-octane, focusing primarily on aggressive, fast-growing companies, they're the firms' specialties and you know what you're in for when you invest in their funds.
PIMCO manager Dennis McKechnie has run
PIMCO Innovation since late 1998, with stellar results. The American Century fund is co-managed by Christopher Boyd and Douglas Day. Boyd has been a portfolio manager for seven years, working on high-profile funds like
American Century Ultra. Michael Ma, former telecom analyst and now manager of the
fund, is probably the shortest on experience. His fund's prospectus doesn't note previous fund-management experience.
Don't let the global labels on some of these funds throw you, by the way. As always, you should check out any fund's holdings, but most tech funds with "global" in their names have most of their assets invested in the U.S. If you're hunting for foreign tech exposure, but not the specificity of the new
Matthews Asian Tech
fund, take a look at
Munder International NetNet, which still expects to have 25% of its assets at home.
If you're aggressive and particularly bullish on the business-to-business sector you might watch
Amerindo B2B Internet
. Lead manager Alberto Vilar, who recently
discussed his Net outlook on
, has been running tech and biotech portfolios for institutional investors since the 1980s. The tech evangelist might be the most aggressive manager in the area, but he can put up big numbers. Last year his flagship
Amerindo Technology fund racked up a 249% return, but it's down more than 30% so far this year.
For those investors who work with an adviser and are combing through the rookies for a solid, broad tech fund, you might consider
. Both of these Boston shops grab whatever decent analysts cross-town rival
doesn't snag. The two companies also have solid reputations for running growth funds. David Santos and Paul Marrkand, two hands on the Putnam fund's team, also work on other solid funds like
Putnam Growth Opportunities and
Putnam Voyager, respectively.
More conservative types might keep an eye on
iBaron Opportunity and
Turner B-to-B E-Commerce
. A pair of former analysts, Matt Ervin and Mitch Rubin, are running the Baron fund, but Ron Baron is supervising. Traulsen says Baron hasn't made a lot of money in the tech sector, but his tendency to buy stocks with the idea of holding them for three to five years might be a good fit for those looking for lower volatility. The fund is down more than 12% since its Feb. 29 inception.
Why would a conservative investor ever consider going near a B2B fund? Bob Turner, who
last Monday, might be one of the most gifted tech/growth-stock pickers around. Witness his Technology fund, which is up 218% over the past year and has managed to post a 31.6% return since Jan. 1.
His new B2B fund might be a good idea because he plans to hold plenty of Old Economy stocks like
who'll do plenty of business over the Web, not just volatile tech plays like
There you have it, a shorter list culled from the long and still-growing list of tech rookies. Even if you're not in the market for a tech fund, it might be a good idea to keep this list handy. It will be interesting to see how many of these are around a few years from now. If tech-stock performance and tech-fund flows slow, many probably won't stick around.
"I'd be surprised if a lot of these new funds didn't merge or liquidate down the road," says Traulsen.