Baidu, Netflix Propel Top Stock Funds

BOSTON (TheStreet) -- The five best-performing U.S. technology mutual funds are soaring for a second year in a row, reflecting investors' appetite for riskier stocks, including cloud-computing company Salesforce.com (CRM), Chinese Internet-search firm Baidu (BIDU) and movie-streaming provider Netflix (NFLX).

The top-five performers have recorded returns of 37% to 58% so far this year. The average tech fund surged 62% last year after imploding 45% in 2008, which kicked off the deepest economic contraction in 80 years.

To be sure, performance has been volatile, as the average technology mutual fund, as tracked by Morningstar, is up 20% both this year and over the past three months. Still, that's double the increase of the S&P 500 Index of the largest U.S. companies for 2010.

Fund managers and investors say technology-company orders, which have picked up in the past three months, probably will stretch into next year, according to Morningstar technology-funds analyst Courtney Goethals Dobrow. From the start of the year through mid-August, technology stocks had fallen 3%, so the late-in-the-year rebound represents all of the year's gains.

The top performers this year have a run-and-gun management style, for the most part, as seen by their turnover rate, which is as high as 833%. A turnover rate of 100% means a fund's roster of stocks has changed completely once in a calendar year.

Technology-fund managers enjoy freedom in deciding what to buy, as seen in the makeup of their portfolios, which range from a big bet on the seemingly staid Apple ( AAPL), which revolutionized the world the with iPod, iPhone and iPad, to the upstart Rovi ( ROVI), maker of the popular mobile-game application Angry Birds, and the clearly out-of-place Mexican restaurant chain Chipotle Mexican Grill ( CMG).

But most funds feed from the same trough. The most popular picks tend to be Apple, Salesforce.com, Baidu, Netflix, online retailer Amazon ( AMZN), Internet auctioneer eBay ( EBAY), software giant Oracle ( ORCL) and Internet search company Google ( GOOG).

Some of the big, and less agile, tech funds are putting in a good showing this year, especially the $1.3 billion Allianz RCM Technology Fund ( RAGTX). It's just out of the top five with a 33% return, coming on the heels of a gain of 57% last year.

Fidelity Advisor Technology Fund ( FADTX), with $719 million in assets, is up 26% by riding Apple hard with a gigantic 15% allocation. Apple has gained 52%.

In inverse order, here are the five best-performing technology mutual funds this year. Performance data, provided by Morningstar, reflect returns through Dec. 9.

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5. RS Technology Fund ( RSIFX), up 37% this year.

This $300 million fund is typical of the top-performing technology funds, with its roller-coaster performance: It gained 75% last year after losing 51% of its value in 2008.

The RS Technology Fund's portfolio of 66 stocks has a 128% annual turnover. Its top stocks are familiar: Apple ( AAPL), at 6%; Google ( GOOG), at 4%, and down 5%; and IBM ( IBM), at 4%, and up 13%.

And then there are a handful of stocks with off-the-charts performances, including: FS Networks ( FFIV), up 170%; Finisa ( FNSR), which makes products used to aid high-speed data communications over local area networks, at 2%, up 184%; and Acme Packet ( APKT), a provider of voice-over-Internet-protocol technology, up 413%.

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4. Jacob Internet Fund ( JAMFX), up 40% this year.

This $47 million fund has gained 28% in the past three months. It holds 33 stocks, and 47% of fund assets are in the top 10 holdings.

Portfolio turnover is a relatively languid (at least for this sector) 52%. Up 72% last year, the fund lost 51% in 2008.

Its top holdings fit the technology-stock stereotype: Apple ( AAPL), at 7.6% of the fund, Google ( GOOG), at 5%; LogMeIn ( LOGM), a provider of online solutions that enable remote access and support to computers and electronic devices connected to the Internet, at 4.7%, which is up 135% this year; and the self-described online network for geeks, Geeknet ( GKNT), at 4.5%, and up 100% this year.

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3. Berkshire Focus Fund ( BFOCX), up 48% this year.

This $28 million fund is a whirling dervish of trading, with a portfolio turnover of 833%. Manager Malcolm Fobes III, on board since the fund's inception in July 1, 1997, is certainly "focused," with 28 stocks and 73% of the fund invested in the top 10, but considers them long-term growth stocks.

Fobes has wide latitude in his picks, as evidenced by the fund's second-largest allocation (8%), to restaurant chain Chipotle Mexican Grill ( CMG). That can be forgiven as it has a return of 167% this year.

The rest of the top picks include all the usual suspects for a technology portfolio: Apple ( AAPL), which is driving fund returns at a 23% allocation; Salesforce.com ( CPR), 7% of the fund, and a 101% return; Chinese Internet search engine Baidu ( BIDU), 6%, and with a 163% return; and Netflix ( NFLX), 5% of the fund and carrying a 247% return.

The fund's most profitable pick is Acme Packet ( APKT), with a 387% return this year. The fund was up 84% last year, after losing 57% of its value in 2008.

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2. Saratoga Technology & Communications Fund ( STPIX), up 49% this year. Last year, it gained 62% after tumbling 46% in 2008.

This year's returns have been boosted by its largest holding, Apple ( AAPL), at 5% of the fund, followed by Oracle ( ORCL), 4%; Cognizant Technology Solutions ( CTSH), 4%, and up 55% this year; while Rovi ( ROVI), the owner of the Angry Birds iPhone/iPad application, is at 2.3% of the fund and up 83%.

The Saratoga Technology & Communications Fund's largest allocation is to cash, at 13%. It has a 33% software-sector weighting and a 31% hardware weighting.

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1. ProFunds Internet UltraSector Fund ( INPIX), up 58% this year.

This $31 million fund has risen 38% in the past three months. Last year, the fund returned 128% after plummeting 62% in 2008.

It has relied on a highly leveraged, quick-on-the-draw trading strategy and is recommended for professional investors only. The portfolio turnover is a dizzying 622%.

Although Google ( GOOG), at 7.3% of the fund, has hurt performance, its managers have made up for it with its rapid-fire portfolio turnover and some stellar stock picks including: Salesforce.com ( CRM), 3% of the fund and a 101% return; Amazon ( AMZN), 5%, 31% return; and the top gainer, TIBCO Software ( TIBX), a developer of business-process-management and optimization software, 1.7% of the fund, and up 117% this year.

-- Written by Frank Byrt in Boston.

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