Tech Funds Rebound on Earnings Surprises

Investors last week shifted money from money market funds and U.S. Treasuries to technology stocks as some companies' fourth-quarter earnings beat expectations.

The average technology fund we track gained 2.5% in the five trading days ending Feb. 5, excluding inverse funds that sell short technology and Internet stocks.

Amazon.com ( AMZN), which surged 26.4% in the five trading days, had its best holiday season ever. In the latest quarter, the company increased net income by 8.7% to $225 million from a year earlier on $6.7 billion in sales, up 18%.

Adding to its sales of digital music and videos, Amazon.com has expanded its offerings to include a library of more than 600 casual games at a sub-$10 price point. The company also will begin collecting payment-processing fees on its Amazon Flexible Payments Service in June.

At 34.4% of assets, Amazon.com is the largest holding of Internet HOLDRs Trust ( HHH), the best-performing technology fund, gaining 11.7% last week. Yahoo! ( YHOO), the fund's second-biggest holding, rose 15.1% after it announced it was shutting its "Briefcase" storage service. eBay ( EBAY), up 7.8% for the period, integrated its payment-processing system with Moneybookers USA.

Ultra Semiconductor ProShares ( USD), the second-best-performing technology mutual fund, up 11.67% on 200% leverage, and Semiconductor UltraSector ProFund ( SMPIX), the sixth-best performer, up 10.49% on 150% leverage, track stocks in the Dow Jones U.S. Semiconductor Index.

Standouts among the holdings include Micron Technology ( MU), up 14%; Nvidia ( NVDA), up 13%; and Texas Instruments ( TXN), up 12.6%. Judicial proceedings in Rambus' ( RMBS) patent case were halted as the claims were deemed to be "unenforceable" against Micron.

The third-best-performing fund was the PowerShares NASDAQ Internet Portfolio ( PNQI).Its positions include Art Technology Group ( ARTG), which also beat earnings expectations, popping 28.7% last week. Another holding, Shutterfly ( SFLY), up 24.8%, announced a 10% revenue improvement over the same period. Likewise, Akamai Technologies ( AKAM) added 24.1% on better-than-expected earnings and revenue.

Best-Performing Technology Funds for the Week Ending Thursday Feb. 5
Fund
Ticker
Rating
Fund Type
1 Week Total Return
Internet HOLDRs Trust
HHH
D+
ETF
11.70%
ProShares Ultra Semiconductors
USD
D-
ETF
11.67%
PowerShares NASDAQ Internet Portfolio
PNQI
U
ETF
11.25%
ProFunds Internet UltraSector ProFund
INPIX
E-
Open-End
10.71%
ProFunds Semiconductor UltraSector ProFund
SMPIX
E-
Open-End
10.49%
Semiconductor HOLDRs Trust
SMH
C-
ETF
7.85%
SPDR S&P Semiconductor ETF
XSD
D
ETF
7.63%
Direxionshares Technology Bull 3X Shares
TYH
U
ETF
7.13%
First Trust Dow Jones Internet Index Fund
FDN
D
ETF
6.70%
Rydex Series - Electronics Fund
RYSIX
E
Open-End
6.43%
Source: Bloomberg & TheStreet.com Ratings

Skipping past the two inverse exchange-traded funds, the third-worst-performing technology fund last week was the Mobile Telecommunications UltraSector ProFund ( WCPIX), down 3.45%. The fund's largest holding, at 23.4% of assets, is Sprint Nextel ( S), which shed 9.7% of its value. Sprint lost a $73 million California case back in July 2008 on early-termination fees and is under the gun for a similar $1.2 billion class-action suit filed in November.

The culprits in the fourth-worst-performing fund, PowerShares Dynamic Media Portfolio ( PBS), which was off 3.33% last week, were Monster Worldwide ( MWW), losing 18.6%; Walt Disney ( DIS), down 12%; Comcast ( CMCSA), losing 9.8%; and Time Warner ( TWX), off 3.5%.

Monster's own Monster Employment Index, which tracks U.S. online job demand, declined 26% over the past year and bodes poorly for job prospecting in 2009. Monster's fourth-quarter revenue fell 16%. Disney's earnings declined 32% as sales slumped 8% to $9.6 billion, hurt by some consumers looking for cheaper entertainment.

Worst-Performing Technology Funds for the Week Ending Thursday Feb. 5
Fund
Ticker
Rating
Fund Type
1 Week Total Return
ProShares UltraShort Semiconductors
SSG
A+
ETF
-11.32%
ProShares UltraShort Technology
REW
C
ETF
-5.38%
ProFunds Mobile Telecommunications UltraSector ProFund
WCPIX
E-
Open-End
-3.45%
Powershares Dynamic Media Portfolio
PBS
D+
ETF
-3.33%
Rydex Inverse 2X S&P Select Sector Technology ETF
RTW
U
ETF
-3.29%
SPDR S&P International Technology Sector ETF
IPK
U
ETF
-3.05%
PowerShares Dynamic Hardware & Consumer Electronics
PHW
D
ETF
-2.90%
iShares S&P North Amer Tech-Multimedia Networking Index Fund
IGN
C-
ETF
-1.65%
Broadband HOLDRs Trust
BDH
D+
ETF
-1.38%
Fidelity Advisor Communications Equipment Fund
FDMAX
E
Open-End
-1.30%
Source: Bloomberg & TheStreet.com Ratings

Even if U.S. online retail sales growth, as estimated by Forrester Research, does slow to 11% in 2009 from 13% in 2008, that is still $156 billion in sales and an expectation of double-digit growth while the overall economy contracts.

For more information, check out an explanation of our ratings.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, 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.

More from Mutual Funds

High-Flying Mutual Funds Begin to Favor Energy but Tech Still Reigns Supreme

High-Flying Mutual Funds Begin to Favor Energy but Tech Still Reigns Supreme

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

Mutual Funds on Track for Record Year

Mutual Funds on Track for Record Year

Bitcoin Today: Prices Come Off Highs as Rally to $10,000 Pauses

Bitcoin Today: Prices Come Off Highs as Rally to $10,000 Pauses

Video: How to Select Mutual Funds in Your 401(k)

Video: How to Select Mutual Funds in Your 401(k)