Dear Dagen: Newest Batch of Internet Funds -- A Roster

Some tips on helping you choose.
Author:
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How can you find out about Internet funds that are in registration -- the ones that will be coming out sometime in the near future? I've invested in the Jacob Internet fund, but I'm not sure that that's necessarily the best choice. -- Peter Breznay

Peter,

Internet funds aren't a scarce commodity anymore. (That's a good thing for investors today with the

AOL

(AOL)

/

Time Warner

(TWX)

announcement.)

You can keep yourself plenty busy investigating the current offerings rather than worrying about the funds that have yet to appear.

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Dear Dagen board

At the end of last June, there were only a handful of Internet funds, namely the

(WWWFX) - Get Report

Internet fund,

(WWIFX)

WWW Internet,

(MNNAX) - Get Report

Munder NetNet and

(MFITX)

Monument Internet.

Now, about two dozen funds are available to the public. And both

Barclays Global Investors

and

State Street Bank & Trust

are planning to launch exchange-traded Internet index funds this year.

Alas, it's not easy making an educated guess about these funds.

Some are run by unknown managers who lack any kind of long-range track record. With others, the money-management firms are unfamiliar names.

The rapidly evolving Internet sector makes it difficult to know what type of investment strategy will be successful six months from now.

Too, the Internet space is so broadly defined that some managers could argue that

Gap

(GPS) - Get Report

or

Wal-Mart

(WMT) - Get Report

, as online retailers, belong in their portfolios.

So it takes effort to make sure your manager is making a bet on connectivity rather than khakis.

The following guidelines can help you find the more appealing portfolios.

Net Vets

First, more experienced money managers are moving into the Internet space. Among the dozen or more Internet funds that have debuted since the end of the third quarter, a few are guided by pros with a record in picking tech stocks.

Jim Callinan, manager of the vaunted

(RSEGX) - Get Report

RS Emerging Growth fund, is co-managing the

RS Internet Age

fund.

Callinan was just

named

Morningstar's

Domestic Stock Fund Manager of the Year for 1999, a year in which his Emerging Growth fund returned 183%.

That coveted title may or may not make you throw your dollars at Callinan. But he has had some practice picking Internet stocks for Emerging Growth, which he's been running since mid-1996.

According to Morningstar, Callinan made a very profitable bet on Internet stocks during the second half of 1997. Last year, he wisely moved his money into business-to-business Internet. Emerging Growth's top 10 at the end of the third quarter was full of Net names, including

Network Solutions

(NSOL)

and

RealNetworks

(RNWK) - Get Report

.

Kevin Landis, another lauded manager, is also running the new

Firsthand e-Commerce

fund as a member of its management team. Landis earned his reputation managing his firm's flagship

(TVFQX)

Firsthand Technology Value fund since its May 1994 inception. As of Dec. 31, 1999, Landis owned the best five-year record for any mutual fund manager with the Technology Value's 58.2% annualized return, according to Morningstar.

The Firsthand e-Commerce fund invests in enablers and beneficiaries of electronic commerce, such as software development tools, database providers and hardware manufacturers. The fund's biggest holding at the end of November was

IBM

(IBM) - Get Report

.

Unfortunately, many of these new funds are not run by veteran managers. What next?

Cost of Doing Business

When picking any fund, you should always pay attention to the expenses. With Net funds, that still applies here. "The fees are going to be there year after year whether the performance is there are not," says Bryan Olson, director of research at

Charles Schwab's Center for Investment Research

.

The

Investors Capital Internet fund, for example, not only comes with a sales load, but its expense ratio is 3%, well above those for other new Internet funds.

The fund's pricing is particularly steep considering that it only invests in 20 technology bellwethers like

Gateway

(GTW)

,

Yahoo!

(YHOO)

and

Cisco

(CSCO) - Get Report

.

Size of Shop, Style of Shop

Some pros maintain that you're better off investing with an established fund company. It's true that bigger firms often have greater resources and can more easily fill a vacancy when a manager leaves.

But if you followed that rule too closely, you would have missed out on a manager like Kevin Landis.

More important, you should focus on where and how that manager is investing your money.

The Internet space makes this task more difficult but not totally impossible.

I asked David Alger, manager of the

(EIFAX) - Get Report

Enterprise Internet fund, how he carves up the Internet space. He offered the following.

You've got business-to-consumer e-tailers (books, music, toys, travel, etc.), business-to-business companies, even consumer-to-consumer businesses like

eBay

(EBAY) - Get Report

. You'll also find companies specializing in communities (

theglobe.com

(TGLO)

); recruiting; Internet finance (online brokers, banks, etc.); Internet advertising; portals; vertical content (

iVillage

(IVIL)

); Internet service providers; infrastructure (Web hosting and content services); software and middleware; direct marketing; and domain name registration.

Regardless of how a fund is categorized, the most important thing is to look at the investment mandate of a fund, the stocks that are being bought and how much it's going to cost you.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.