CBS-CNet Deal Boosts Tech Funds

The average technology fund we track, excluding the funds that short the sector, climbed 3.85% this week as the media consolidation of Internet stocks continues.

The biggest news in this area is the CBS ( CBS) purchase of CNET Networks ( CNET) for about $1.8 billion. The ProFunds Internet UltraSector ( INPIX) was prepositioned to benefit from the 48.18% skyrocketing of CNET shares.

The B2B Internet HOLDRs Trust ( BHH), which does not replace companies in its portfolio once they are no longer traded, is down to just two holdings.

However, since the fund is 85.2% Ariba ( ARBA) and 14.8% Internet Capital Group ( ICGE), and those shares rose 14.40% and 4.47% in the five trading days ending Thursday, May 15, this fund tops our best-performing list.

The second-place fund, Internet Infrastructure HOLDRs ( IIH), is down to just eight holdings. At 59.1% of assets, VeriSign ( VRSN) dominates the short list of holdings. VeriSign shares gained 11.02% as the company announced the milestone of one million active secure sockets layer certificates that provide security to the Web sites of most of the Fortune 500 and the 40 largest banks worldwide.

The fund's third-largest holding, RealNetworks ( RNWK), had an even better week, rising 15.9% on news of an impending spinoff of its games division and higher forecasted sales.

Rated E-, the generally poor-performing ProFunds Mobile Telecommunications UltraSector ( WCPIX) bounced back by 11.66% for the period under review. Its holding of Leap Wireless ( LEAP) jumped 19.82% on smaller losses than the prior year and the addition of 230,000 new customers this quarter. Up a 17.04%, some Telephone & Data Systems ( TDS) shareholders were shocked to learn that the company had rejected a buyout bid estimated at $97 a share, well above Thursday's close of $47.81. Clearly, insiders believe the company is worth more.

Best-Performing Technology Funds for the Week Ending Thursday May 15
Fund Ticker Rating Fund Type 1 Week Total Return
B2B Internet HOLDRs Trust BHH E- ETF 13.01%
Internet Infrastructure HOLDRs Trust IIH C+ ETF 11.83%
ProFunds Mobile Telecom UltraSector ProFund WCPIX E- Open-End 11.66%
Ultra Semiconductor ProShares USD E- ETF 11.65%
ProFunds Internet UltraSector ProFund INPIX D Open-End 9.72%
ProFunds Semiconductor UltraSector ProFund SMPIX E- Open-End 8.87%
Ultra Technology ProShares ROM E- ETF 7.26%
Munder Internet Fund MNNAX D- Open-End 6.27%
Ultra Telecommunications ProShares LTL U ETF 6.25%
First Trust Dow Jones Internet Index Fund FDN E+ ETF 6.19%
Powershares Dynamic Networking Portfolio PXQ E- ETF 5.57%
Source: Bloomberg & Ratings

On the downside, taking the worst of the beating this week are the two funds shorting their respective Dow Jones indices with 200% leverage. The UltraShort Semiconductor ProShares ( SSG) lost 11.11%, while the UltraShort Technology ProShares ( REW) gave up 6.71%.

Of the semiconductor index members, the best performer was RF Micro Devices ( RFMD), which predicted a return to profitability next quarter.

The technology index member gaining the most this week was Electronic Data Systems ( EDS), up 27.98% upon agreeing to be bought by Hewlett-Packard ( HPQ) for nearly $14 billion.

Worst-Performing Technology Funds for the Week Ending Thursday May 15
Fund Ticker Rating Fund Type 1 Week Total Return
UltraShort Semiconductors ProShares SSG A ETF -11.11%
UltraShort Technology ProShares REW C ETF -6.71%
Kinetics Internet Emerging Growth Fund WWWEX D- Open-End -0.22%
Kinetics Internet Fund WWWFX B- Open-End 0.31%
Fidelity Select Telecommunications Portfolio FSTCX D- Open-End 0.85%
Fidelity Advisor Telecommunications Fund FTUAX D Open-End 0.85%
Forward Emerald Opportunities Fund HSYTX U Open-End 1.44%
Powershares Dynamic Media Portfolio PBS E+ ETF 1.78%
Franklin Dynatech Fund FKDNX C Open-End 1.78%
Hartford Global Communications Fund/The HGCAX A Open-End 1.87%
Source: Bloomberg & Ratings

Both the Dow Jones Industrial Average and the S&P 500 Index have now gained back almost exactly 50% of their declines from their October 2007 highs, breaking through their downtrend resistance lines. Market strength over the next few weeks is crucial to determining if we are going to test the highs or the lows.

The tech-heavy Nasdaq 100 Index consolidated its advance at the 50% level earlier this month. In a bullish sign, this index moved up to the next Fibonacci retracement level of 61.8% this week.

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Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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