More Contraction in Tech-Fund Universe - TheStreet

More Contraction in Tech-Fund Universe

At ING Pilgrim, an Internet and a communications fund may soon be history.
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Two more tiny, toothless tech funds are getting swept under the carpet.

Next month,

ING Pilgrim Funds

will ask shareholders of its struggling, broker-sold

(INGAX)

Pilgrim Internet and

(IGCAX) - Get Report

Pilgrim Global Communications funds to approve merging them into its

(IITAX)

Pilgrim Global Information Technology fund, according to paperwork filed with regulators. If approved, the funds will merge April 4. Meanwhile Global Information Technology plans to change its name on March 2 to

ING Global Technology

and to broaden its strategy to focus on tech stocks rather than communications industries.

This is just the latest example of a fund company looking to combine small, tech-sick funds to make them more profitable and less of an eyesore. The

rising tide of mergers and liquidations in the tech- and growth-fund categories illustrate how fund companies, not just fund investors, got carried away with the

Nasdaq's

white-hot run in 1999 and 2000, years in which the number of tech funds

rose by 50%.

Fund companies usually merge a fund when it hasn't attracted enough money to be profitable and is unlikely to do so soon due to a weak track record. Both of these young funds fit the profile. While mergers don't trigger taxable gains or change the value of your investment, they do result in you owning a fund you didn't choose.

The Pilgrim Internet fund, run by Guy Uding since its July 1999 launch, fell 69% in 2000 and 54% last year. Both years, Uding trailed at least 90% of his peers, according to Chicago research house Morningstar. For its part, the Global Communications fund, launched a prescient nine days prior to the Nasdaq's peak March 10, 2000, doesn't have much to crow about either. The fund is down 58.8% over the past 12 months, compared with a 34.4% fall for the average communications fund.

The two funds have some $21 million in combined assets, compared with $278 million for the average tech fund. An industry rule of thumb is that the average stock fund becomes profitable after gathering some $80 million.

The fund they're merging into has fared better, but is hardly a star. The Global Information Tech fund, run by Uding since it started at the end of 1998, rose 140% in 1999, similar to many of its peers, but averages a 3% annual loss over the past three years, also in line with its average peer. The fund hasn't found much of an audience either with just $31 million in assets.

Other firms, like

Merrill Lynch,

Munder and

Berger Funds, to name a few, have merged or liquidated sputtering tech, communications or tech-heavy growth funds over the past year. Although the average tech fund leads all fund categories over the past 90 days with a 32% gain, more mergers are likely to follow. We previously

combed through the category and highlighted some small and sagging funds that are likely merger candidates. Pilgrim Internet was on the list.

Less Work for Wick

In another change in the tech-fund world, Paul Wick, one of the category's graybeards, is trimming his workload.

Wick, who has run the broker-sold

(SLMCX) - Get Report

Seligman Communications & Information fund since 1990 and the

(SHGTX) - Get Report

Seligman Global Technology fund since its 1994 inception, has stepped down from his post on the Global fund according to paperwork filed with regulators. He'll be replaced by Richard Parower, who joined the firm in April 2000. The fund will be run by Parower and Steven Werber, who joined Wick as a co-manager in January 2000.

The move is notable because the two funds have weathered the past two years' storm far better than most. Wick's strategy of seeking tech outfits with solid growth prospects and decent valuations has held him back in go-go growth markets, but it has proved its mettle since the Nasdaq's 2000 peak.

The Communications & Information fund, where Wick has the second-longest tenure in the category, tops its average peer and the

S&P 500

over the past one, three, five and 10 years, according to Morningstar. The Global fund, at which Wick and Werber usually stash about 35% of the fund's assets in foreign stocks, has done the same over the past one, three and five years.

The bottom line is that this is good news for shareholders of the domestic portfolio, but investors in the Global fund should keep an eye on its performance.

Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

imcdonald@thestreet.com, but he cannot give specific financial advice.