Monday's kneecapping of Net stocks reflects no fundamental change, say Internet-focused fund managers. The
second-worst point loss ever is just a momentary stumble -- a breather, even -- in the inexorable climb of Internet stocks, they explain. In fact, some managers say the selloff may offer yet another a buying opportunity.
Outside of Internet circles, all the talk Monday was devoted to the newfangled idea called "value investing." Analysts and money managers noticed a flight (some call it "rotation") out of technology and growth stocks into long-undervalued cyclical stocks.
But Internet-heavy technology mutual funds are playing it cool.
"People are just looking for reasons, when I'm not sure there is one defining reason, other than the stocks have had a tremendous run over the past month," says Ryan Jacob, portfolio manager of the
Internet fund, which was up 122% for the year as of Friday. "This sector, in particular, is subject to very vicious price moves. And that can be down as well as up."
, for example, fell 31 1/16 Monday to close at 158 15/16, far off an April 6 intraday high of 195 3/4. But it's still above its March 29 closing price of 149 5/8.
, down 26 3/4 to close at 113 on Monday, is still above its March 17 closing price of 109 1/16.
"It's understandable that
Internet stocks would take a breather at some point," Jacob says. "It's so simplistic, but there is no seminal event out there."
Expect more sudden swings, Jacob says. "I think we're going to continue to see a lot of turbulence in the sector," he says.
Emeric McDonald, director of research for
Amerindo Technology Advisors
, which manages the Amerindo
Technology fund, also says he doesn't see any fundamental changes in the sector. "We've had a big run, and this is the correction. That's normal, and it's probably healthy," he says.
For Amerindo, which is a large holder of
, the downdraft has given the firm the opportunity to buy stocks that came public in the past three to six months but ran up too quickly, McDonald says. While not saying whether Amerindo has bought or would buy stock in specific issues, he mentions that appealing candidates included
"Those are examples of quality companies that immediately priced very highly that would be more attractive if the prices were lower," he says.
Too high, too fast is how Alan Loewenstein, co-portfolio manager of the
Global Technology fund, describes the past few months' Internet frenzy. Monday's decline in Net stocks is understandable because the issues reached "substantial overvaluations," he says. For example, AOL's market capitalization briefly overtook
McDonald also notes that newly public Internet companies are hitting market capitalizations of $1 billion to $2 billion before even the first research reports had been issued. Another sign, he says, is how Internet IPOs are slated to go public at 12 to 14 but get priced at 24, and then open at 60 before closing at 80 on the first day. Not bad for companies that often won't be cash-flow positive for at least 18 months.
"You just wonder which
Internet stocks are going to survive and which will be the market leaders," he says.
Referring to market leaders such as AOL, Yahoo!, Amazon.com and
, Loewenstein says, "Investors are selling them, but those are probably the stocks you want to buy as the stocks are coming in."
Conversations with friends and acquaintances in recent days indicate that individual investors are still interested in technology leaders. "People say, 'I missed America Online -- is it time to get in?' or '
at 36 -- should I buy it?'" he reports. "People as individuals do want to buy these things."
Brian Salerno, co-manager of the Internet-focused
NetNet fund, agrees that individual investors don't look like they've been spooked by recent drops in Internet stocks.
"Inflows remain very strong for our fund," he says. "It's counterintuitive. ... We assumed we were going to get some slowing down of the inflows, but if anything, it's picked up."
The fund, whose assets under management rocketed to $1.5 billion at the end of the first quarter from $200 million in December, set its one-day record for inflows on Friday, Salerno says, though he wouldn't say what that record was. For every shareholder who may be trimming his or her holdings, he says, "there are probably three or four waiting for a crack to get in."
Salerno says the fund was taking the opportunity to add to its holdings in companies that were 20% off their highs or more, including AOL, Yahoo!,
and smaller names such as
Salerno won't say what stocks the fund is selling -- if any -- though he says the fund's cash position is still in its usual range of between 5% and 10%, though toward the high end of that range.
Like everyone else, he'll be waiting to see what color his stock-tracking screens are by Tuesday afternoon.