5 Technology Funds That Are Built to Last

BOSTON (TheStreet) -- A decade after technology mutual funds imploded, a new crop of managers who learned from others' blunders are finding success.

How? Old-fashioned stock-picking fundamentals. Back then, it was Boo.com,Pets.com and eToys.com. Today, it's the solidly profitable and stable Apple ( AAPL), Qualcomm ( QCOM) and Check Point Software Technologies ( CHKP) that head fund manager's top-pick lists.

Technology funds are the second-best-performing sector this year, with a return of 5.4%, behind only energy, at 9.7%, out of 21 domestic fund categories tracked by Morningstar. During the past 12 months, technology funds are up 26%. The S&P 500 Index has risen 4.5% this year and 17.4% over 12 months.

If one needs a reminder of the investing environment around the time of technology's last big bust, one need only look at what happened to one of the hottest funds of its day, the Van Wagoner Emerging Growth Fund.

The mutual fund quadrupled in 1999, helped by the rapid-fire investing style of manager Garrett Van Wagoner, who had rock-star status in the investment community.

His success lured investors, and the fund's assets rocketed to about $1.5 billion in 2000 from $189 million the year before.

But the technology bust of March 2000, 11 years ago this week, resulted in the fund losing 21% in 2000, 60% in 2001 and 65% in 2002. Investors disappeared as quickly as they had appeared. Not much later, what was left of the the fund was absorbed by another firm.

But mutual fund analysts now say the sector is more stable and portfolio choices are based more on financial fundamentals than wishful thinking, so the impact of boom-and-bust cycles have been mitigated. "Many have viewed the sector with skepticism since the tech bubble burst more than a decade ago, but times have clearly changed for the better," Zacks Investment Research said in a Feb. 18 note. "Valuations are now based on stronger fundamentals, and careful selection of investments has yielded good long-term returns for many funds."

Morningstar mutual fund analyst Courtney Goethals Dobrow said in an interview that "the gun-slinging (investment) environment" of a decade ago is a thing of the past. "You don't see managers building up a 40% (stake) in one stock.

"Technology firms came out of the downturn somewhat chastened," such that they manage their businesses more conservatively and so have been able to handle downturns better than before, she said, which, in turn, helps the funds maintain stability in a period of volatility.

Indicative of its newfound stability, the technology sector is the top-performing sector over the past three years, with an average annual return of 10.6%, notes Dobrow, citing Morningstar data.

Here are five technology mutual funds that have shown solid returns over the past few years, despite the stock-market crash of 2008:

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Fidelity Select Technology Portfolio ( FSPTX), with $2.9 billion in assets, has been managed by Charlie Chai since January 2007.

It is up 7.4% this year, 38% over the past year and has a sterling three-year average return of 16%.

The Select Technology Portfolio gets a three-star rating from Morningstar out of a possible five.

Chai, a 1997 graduate of Dartmouth College, also manages the Fidelity Select Communications Equipment Portfolio ( FSDCX) and is involved with two other funds, bringing the assets he manages to $3.5 billion.

Morningstar analyst Courtney Goethals Dobrow said in an interview that since Chai took over management of the fund, it has consistently been one of the top performers in its category "and it has remained a fine offering."

The fund has a big bet on the maker of personal technology such as the iPad and iPhone by Apple ( AAPL) , making it 14% of its assets, one of the most concentrated positions of any fund. Internet search engine Google ( GOOG) is the next-largest holding at around 7%. Qualcomm ( QCOM), a leader in wireless network technologies, and Corning ( GLW), the maker of liquid crystal display materials, follow at about 3% of the fund.

About 40% of its assets are in the top 10 holdings, but after that, Chai spreads his bets around, recently holding 304 stocks. After the first 20 or so, none makes up more than 1% of the fund.

A relatively new addition to the fund's portfolio is Trimble Navigation ( TRMB), which makes global positioning systems (GPS) for the government and for commercial applications such as surveying equipment, vehicle navigation systems and mapping equipment. They are in use in agricultural and construction industries as well as in aviation and by the military.

Trimble shares are up 26% this year and 84% over the past 12 months, giving the company a market value of $6 billion.

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The Janus Global Technology Fund ( JAGTX), a $949 million mutual fund that gets a three-star rating from Morningstar, has been managed by Burton Wilson since February 2006.

Wilson joined Janus in January 2005 as an equity research analyst covering technology stocks. He is a graduate of the University of Virginia, then earned a law degree there, followed by an MBA from the University of California-Berkeley. He had 14 years of financial industry experience before joining Janus.

Wilson also manages the $168 million Janus Aspen Global Technology Fund ( JGLTX) and oversees a total of $1.1 billion for Janus.

Morningstar analyst Kathryn Young said in an August 2010 research note that Wilson "anchors this fund in a strong focus on valuation. He looks for firms he can buy at prices that allow for a minimum of 20% appreciation before hitting his estimates of fair value. He trims positions that approach that upper threshold and adds to those fundamentally sound firms that fall in price."

She said the portfolio shows an emphasis on companies with strong fundamentals. "Its valuation metrics are generally below the category average while its profitability metrics are higher. This indicates the fund enjoys stronger cash-flow generation without paying a premium. Indeed, eight of the fund's top 10 holdings exhibit free cash-flow yields greater than 5%," Young wrote.

Those top 10 include Google, computer networking hardware maker Cisco Systems ( CSCO) and Tyco ( TYC), a busniess-services conglomerate. The biggest position is Atmel ( ATML), at 6.5% of the fund.

Atmel's products include microcontrollers, programmable logic devices, and a wide range of proprietary memory chips. It sells to manufacturers of communications, consumer electronics, computing and automotive products.

The Janus fund family is by far Atmel's biggest institutional investor, with a 10% stake. Atmel's shares are up 15% this year and 181% over the past year, making for a $6.2 billion market value.

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T. Rowe Price Global Technology ( PRGTX), with a four-star rating from Morningstar, has been managed by David Eiswert since October 2008.

The $431 million fund is up 10% this year and 40% over the past year. It has a three-year average return of 17%.

Eiswert, age 38, manages a total of $2.8 billion at T. Rowe Price in his varied roles with the firm's U.S. Structured Research Strategy team.

He graduated from St. Mary's College of Maryland in 1994 and then earned an MA in economics from the University of Maryland.

Eiswert joined T. Rowe Price in 2003. Before that, he was an analyst at Mellon Growth Advisors and Fidelity, and worked as a consultant in the communications industry.

Apple accounts for 8.5% of the Global Technology fund, followed by Qualcomm, 6%, and Google, at 4%. After that, it's a widely diverse portfolio of 97 stocks, with only 34% of assets in the top 10 holdings.

A new addition to the portfolio late last year is Nuance Communications ( NUAN), at 1.3%, which makes it a top 20 holding.

Nuance Communications' shares are down 2% this year, dropping the market value to $5.4 billion. Nuance has developed speech-based technologies used in automated call centers, mobile phones, global positioning systems, personal desktops and health-care documentation.

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Invesco Technology Investor ( FTCHX), managed by Warren Tennant since February 2008, has been putting up solid returns since he took over, including 7% this year and 29% over the past year.

The $705 million fund gets a three-star rating out of a possible five from Morningstar.

Tennant, who has been with Invesco since 2000, has both an undergraduate degree and an MBA from the University of Texas. He has been involved in the finance and investing fields since 1993. He was an equities analyst at the firm before becoming a portfolio manager in 2007.

Tennant is involved in the management of four other Invesco technology funds and oversees a total of $1.5 billion for the firm.

The Technology Investor's top holdings are Apple, at 7%, Google, at 3%, offshore-IT-services firm Cognizant Technology Solutions ( CTSH), 4%, Check Point Software Technologies ( CHKP), a provider of computer network security systems, at 4%, and Qualcomm, 3%.

About 36% of the fund is in the top 10 holdings. The portfolio includes 70 stocks.

One of the latest additions is Wright Express ( WXS), at 1.4% of the fund. The company provides fuel- and fleet-management services to trucking and other transportation companies via its proprietary charge card system. Its shares are up 10% this year.

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At the other end of the spectrum in terms of manager tenure is Columbia Seligman Communications & Information ( SLMCX), manager Paul Wick, who has been at the helm for 20 years, perhaps the longest tenure of any manager of a technology fund.

Wick, a graduate of Duke University and its graduate school of business, started managing the then-Seligman Communications and Information Fund when he was only 25 years old.

The $4.3 billion fund has a return of 4.4% this year, 20% over the past year and sports an impressive 15-year annualized return of 10%.

Wick oversees $5.5 billion in assets for the firm and heads a team of four managers on this fund. He also has a support team of 12 analysts.

Morningstar gives it its highest rating of five stars.

Morningstar analyst Courtney Goethals Dobrow says that "by keeping an eye on valuations, management has made this one of the tech category's least volatile members" as it rode out the sector downturns of 2001 and 2008 better than any of its peers.

Dobrow wrote in a March 1 research note that Wick "looks for technology stocks with a combination of decent valuations and good growth prospects. He's more valuation-sensitive than many of his rivals and shies away from companies that aren't generating cash or that have inexperienced management."

She said the fund has an expansive mandate and lots of flexibility such that Wick can make big bets on semiconductor stocks when they're cheap and buy health-care related technology stocks.

The fund's portfolio is made up of 52 stocks, with the top 10 making up 48% of its assets.

The biggest holding is Synopsys ( SNPS), at 7% of the fund. Its shares are up 1.4% this year.

Synopsys is an electronic design automation firm that specializes in tools used to design digital chips. Its fate is tied closely to that of the semiconductor industry as chip makers, such as Intel ( INTC), are its largest customers.

Apple is 5% and Qualcomm 4% of the portfolio, but the fund also has some out-of-favor technology stocks, such as software giant Microsoft ( MSFT) and computer-hardware maker Hewlett-Packard ( HPQ) in its top 10 now, both at about 4% of the fund.

>To see these funds in action, visit the 5 Technology Funds portfolio on Stockpickr.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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