Over the past couple of years, tech funds have been as steady and predictable as, well, tech stocks. But some have weathered the storm better than others.
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Tech funds rang up a 136% average gain in 1999 when investors decided tech shops could do no wrong. This buying binge pushed stocks to outlandish valuations. But thanks to slumping demand and earnings growth, tech funds lost a third of their value last year. Today, the Big Screen is uncovering which members of this mercurial club topped their peers in both years and what stocks they own.
It's an intriguing idea, and tells you a little about the mettle of the fund manager: As good as life was for tech funds in 1999, it has been equally as bleak since the tech-laden
Nasdaq Composite Index
peaked last March. The average tech fund is down a stunning 60.8% over the past 12 months, according to
. Nearly 20 tech funds have already lost more than half their value this year.
Tech Vs. the Market
Source: Morningstar. Returns through March 30.
There might be 137 tech funds out there, but only about 50 have been around since the start of 1999. Of those 50, only 13 managed to beat their average peer over the past two calendar years. And only six have managed to lose less than 34.4%, the category's average loss since Jan. 1. If you think this list looks battered, on Thursday, we'll look at tech funds that trailed their peers in both years. But first, the "winners." Here they are, ranked by their returns or losses so far this year.
No, it's not a pretty group. They're down more than 37% on average so far this year and you might wonder why we're bothering. Well, one reason is that tech funds took in some 30 cents of every buck that went into U.S. stock funds this year, so there are millions of folks wondering how to sort the wheat from the chaff in this batch. Also, over the long term, a diversified portfolio has gotten a boost from a modest tech-fund position.
A portfolio with 90% of its money in the
Vanguard 500 Index fund, which tracks the
S&P 500 Index
, and the rest in the average tech fund would've topped a portfolio holding just the index fund over the past five- and 10-year periods, according to Morningstar.
A Little More Tech, A Little More Volatility
Source: Morningstar. Annualized returns through Feb. 28.
If you're looking for a tech fund or trying to weigh one you already own, the funds on our list are intriguing. That said, it's not a buy list.
Many of the six funds that are beating their peers so far this year might not be what you're after.
W&R Science & Technology fund, for instance, had just 38.6% of its money in tech stocks at the end of last year and about 30% of its money in health care stocks. The fund, where Zachary Shafran has only held the reins since February, also had more than 20% of its money in cash. That eclectic portfolio might have worked in the recent bloodbath, but it's not necessarily the tech fund most long-term investors are looking for.
A fat cash stake is a theme among the leaders on our list. The no-load
fund and the broker-sold
MSDW Information fund each had more than 12% of their money in cash at the end of last year. Since money in tech stocks was money lost, that cash was a helpful cushion to the blow of last year's tough market.
But if you're looking for funds with consistent outperformance and veteran portfolio management among the top six on our list, you might focus on the broker-sold
Dreyfus Premier Technology Growth fund, the no-load
Dresdner RCM Global Technology fund, and the
PIMCO Innovation fund.
Mark Herskovitz has run the Dreyfus fund since its 1997 inception, focusing on stocks of leading tech companies with healthy balance sheets that are taking market share from competitors. Yes, the fund is down more than 60% over the past year, but that actually beats its peers -- something Herskovitz has done each calendar year since the fund launched.
The Dresdner fund has had Walter Price and Huachen Chen at the helm since it was born at the end of 1995. The pair actually goes back further than that, having run tech portfolios for institutional investors for more than 10 years. They divide the portfolio among concept stocks, steadier blue-chips and battered shares they think are poised to rebound. The fund is down more than 50% over the past year, but has beaten its peers each calendar year. It also beats at least 80% of its competitors over the past one-, three- and five-year periods, according to Morningstar.
Before taking the reins of the of the broker-sold PIMCO Innovation fund back in 1998, Dennis McKechnie was an analyst working on the fund. He's got a racy streak and isn't shy about making big bets on stocks he likes. That can lead to volatility, illustrated by the fund's more than 40% fall in last year's fourth quarter. That said, the fund has topped its peers each calendar year since its 1994 launch.
There are some funds lower on our list that you might want to check out, too. The no-load
Firsthand Technology Leaders and
Firsthand Technology Value funds, for instance, both have tech guru and
darling Kevin Landis at the helm. Though both have fallen harder than their peers recently, Landis' long-term track record merits attention.
The Tech Leaders fund, where Landis essentially shops for shares of tomorrow's tech titans, has a 19.7% three-year annualized gain that beats 89% of its peers, according to Morningstar. And the Tech Value fund, where he essentially looks for stocks of tech shops he thinks are undervalued, has averaged a 22.4% annual gain over the past five years that tops 95% of its peers.
Landis has his fans and his critics. He's taken a beating with everyone else this year, but that long-term record is still hard to knock.
If you're curious as to what stocks put these funds ahead of the pack, look no further. We tossed all 13 into a pot and sifted out their cumulative top-10 picks. Since the most speculative tech stocks have fallen hardest, it's no surprise to see that these funds have stuck to a steady diet of market leaders. Still, the list gives you pause.
With "must-own" titans like data storage shop
that have lost more than half their value this year, this roster makes you wonder how things could be worse for the sagging sector.