In a way, tech funds are a lot like mercurial actor
Robert Downey Jr.
: Both look a little rough right now, but we can't take our eyes off them.
Saturday Screen Roundup
Financial Services Funds
Small-Cap Growth Funds
Mid- Cap Growth Funds
Large-Cap Growth Funds
Big-cap growth stocks in general, and tech stocks in particular, fueled the bull run of the late 1990s, leading to 1999's crescendo where the average tech fund rang up a stunning 135% gain. Then thin-air valuations and slowing demand for tech products led to a meltdown for the sector. The average tech fund lost one-third of its value in 2000, worst among all U.S. stock fund categories, according to
So far this year, tech funds are down almost 7%, on average, beating only health care funds, which are down more than 10%. That said, even though 1999's darling networkers like
are down more than 25%, not all of the vast tech sector is sagging.
TheStreet.com's Internet Index
is up 7.2% this year and the
Philadelphia Stock Exchange Computer Boxmaker Index
has rung up a 21.8% gain since Jan. 1. Software bellwether
, which fell more than 60% last year, is up more than 30% in 2001.
And even though tech funds' recent performance is hardly a thing of beauty, their long-term record is still more than solid, beating all other fund categories over the past three-, five- and 10-year periods, according to Morningstar. Lest we forget, 2000 was the
first down year for the average tech fund since 1984.
What Have You Done For Me Lately?
Source: Morningstar. Annualized performance figures through Feb. 16.
So, if you're looking at tech funds in earnest or just as a curiosity, the
is here to help. Over the past few months we've screened for funds with above-average performance and long management tenure or low expenses, or other criteria. Now let's put some of these together. There are 128 tech funds out there; we singled out those that beat their average peer over the past one- and three-year periods. Then we yanked out any funds where a manager had been at the helm for less than three years, as well as funds with expense ratios above the category's already high 1.79% average.
That left us with just five funds and here they are, ranked by their three-year annualized returns.
This is an eclectic and short list, so let's look them over and then talk about a couple of solid tech funds that narrowly missed our list.
You might not have heard of the chart-topping, no-load
Dresdner RCM Global Technology fund, but it's worth a look. Co-managers Huachen Chen and Walter Price Jr. have run institutional tech funds together for more than 10 years. The pair runs a diversified tech portfolio, spreading the fund's assets over different industries and capitalization ranges, and the fund's 38.8% annualized return over the past five years beats all other tech funds, according to Morningstar.
One point to keep in mind is that the fund that made our list is for institutional investors, but the managers run a clone with the same name for retail investors that started at the beginning of 1999. That fund's ticker symbol is DGTNX.
Icon Information Technology fund is the only one on our list that's in the black over the past 12 months. That's probably because it doesn't own that many tech stocks, per se. As you might imagine, the average tech fund has some 80% of its assets stowed in stocks with a tech label, according to Morningstar, but at the end of last year this fund had just 35% of its money in tech stocks.
Instead, lead fund manager Craig Callahan, spreads the fund's money more broadly in nontech stocks that are somewhat techy, like
, which makes financial transaction equipment, and audio equipment maker
. The somewhat low-tech strategy has paid off. The fund's 43.5% three-year annualized return beats 97% of its peers and last year it gained 14%, compared to a 33% loss for its average peer. But if you're looking for a so-called pure tech fund, you might want to look elsewhere.
In running the broker-sold
Dreyfus Premier Technology fund, manager Mark Herskovitz focuses both on leading tech shops and smaller, emerging players. He's run the fund since its 1997 inception and the fund beat its average peer in each of its first three calendar years. Its 42.1% three-year annualized gain beats 94% of its peers and the fund lost 27.9% last year, less than 65% of its peers.
Berger Information Technology fund isn't standard tech-fund fare. The Denver shop bought the fund from subadviser
Bay Isle Financial
and manager Bill Schaaf, who also writes about the computer industry in his spare time. Schaaf, who has run the fund since its 1997 inception, takes the pragmatic approach of focusing on stocks of companies with growing market share in thriving tech pockets.
Though it sounds simple, that approach has worked well. The fund's 37.5% three-year annualized return beats 89% of the fund's peers. That said, the fund might not be able to hide from rough waters any more than other tech funds. Last year it lost nearly 28%, less than its average peer, but since Jan. 1 the fund is down 9.1%, trailing its average peer according to Morningstar.
Principal Preservation PSE Tech fund might be the quirkiest index fund out there. For starters, few index funds are sold through brokers and also the
PSE Tech 100 Index
is price-weighted and maintained by a committee, so it can look a bit strange. For instance, its top two holdings are biotech shop
and graphic design software maker
, not tech giants like Cisco or Microsoft.
That said, the fund has a solid track record. Its 35.9% three-year annualized gain beats 85% of its peers and it lost only 17.2% last year, nearly half the tumble its average peer suffered.
There are many solid funds from venerable growth shops that just missed our list because their current manager hasn't been in place for three years. Most notable among them are the no-load
Invesco Technology fund and Fidelity's
Select Software & Computers and
Select Computers, which all levy a maximum 3% front-end load or sales charge. Each of these funds beats their average peer over the last one- and three-year periods and carries a below-average annual expense ratio.
You also might look at the no-load
Firsthand Technology Value fund and the
Firsthand Technology Leaders fund. Both have tech guru Kevin Landis at the helm and each has trounced its peers over the last three years. The funds missed the cut because their annual expense ratios are above average.
If you're curious about what stocks propelled the funds that
make our cut, look no further. We've mooshed the funds together and sifted out a cumulative top-10 list. Here it is, ranked by the stock's stake in our leading funds.