Chet Currier — Major Fund Players Getting Back on Web Bandwagon

30

Here’s heartening news for New Age investors who’ve been worrying about whether and when the great boom in Internet stocks might revive.

Three of the biggest U.S. mutual fund firms have just placed bets that the bull market in computer and telecommunications stocks has plenty of life left in it. If your stake in tech is going to go permanently sour, well, you’ll have Fidelity Investments, the Vanguard Group and Putnam Investments for company.

As no techie needs to be told, Internet-related stocks have just come through a rough spell. In the three months from the end of February to the end of May, an average of 150 “technology” funds calculated by Morningstar Inc. fell 27 percent.

For a while there, it looked as though the tech wreck was going to be much worse. The Bloomberg U.S. Internet Index of stocks plunged 54 percent from March 9 to May 25.

But many of the stocks have begun to rally lately as Fidelity, Vanguard and Putnam have forged ahead with plans for new funds that specialize in Internet-related technology or at least have a strong high-tech flavor.

Fidelity, whose $863 billion fund family ranks as the world’s largest, plans in September to add the Fidelity Select Networking & Infrastructure and the Fidelity Select Wireless funds to its stable of three dozen specialized sector funds. The firm already has electronics, computer, telecommunications, developing communications and technology sector funds.

Vanguard at $547 billion, the second-biggest fund firm has just added the $300 million Vanguard Growth Equity Fund, previously operated as the Turner Growth Equity Fund by Turner Investment Partners in Berwyn, Pa. Turner continues to manage the fund’s investments.

Growth Equity isn’t a pure tech fund. But at last report, technology stocks made up half its holdings.

Putnam Investments Inc., which runs a $283 billion fund group, brings out the Putnam Technology Fund this week, with a mandate to buy technology stocks of any size, including initial public offerings and private equities, and spiced up with a few biotechnology investments.

These moves speak volumes. It’s one thing for some upstart to try to catch a wave with an Internet fund, quite another for a pillar of the fund establishment to throw its weight behind the idea.

Vanguard has long been an outspoken skeptic, describing in a report titled “Why there’s no Internet fund at Vanguard” how it wants to avoid chasing ideas that might not stand the test of time. There still isn’t any Internet fund at Vanguard, but Turner can be counted on to give the firm a new place at the tech table.

Meanwhile, plenty of established fund managers who weathered the tech shakeout remain bullish as well. As Howard Ward, manager of the $3.4 billion Gabelli Growth Fund, said at a recent Morningstar meeting in Chicago: “The technology sector is an area you cannot ignore if you’re going to be a growth investor.”

After the past couple of years, a spring sell-off in tech stocks almost seems part of the annual Wall Street routine. From mid-April to mid-June 1999, the Bloomberg U.S. Internet Index fell 36 percent.

“People are used to the volatility in our market,” said Jim Callinan, manager of the $5 billion RS Emerging Growth Fund. “What we try to do is to take advantage of these wild swings.”

Garrett Van Wagoner, whose $987 million Van Wagoner Emerging Growth Fund is three-quarters technology, said people who can’t keep their enthusiasm during severe sell-offs have little chance to succeed in high-tech investing: “You’ve got to buy when the screen is bloody red.”

If you train your sights on tech companies rather than their stocks, said Callinan, “the fundamentals are incredibly strong.”

Chet Currier is a columnist for Bloomberg News.


Are Financial Services Funds Ready to Rally?

Mutual fund investors who look for out-of-favor bargains can’t miss an obvious candidate right now.

Among its contrarian credentials, it’s the worst performing group over the past year among all 34 categories of stock and bond funds tracked by the research firm of Lipper Inc.

This breed of funds racked up dazzling returns in the 1990s, except in years 1990, 1994 and 1999, when the Federal Reserve Board was pushing short-term interest rates higher.

Now, if the Fed is almost finished with its latest campaign to slow the U.S. Economic Express, “this sector could rally hard,” in the judgment of Scott Cooley, an analyst at Morningstar Inc. in Chicago.

For those who haven’t already identified them, we’re talking about financial services funds a collection of roughly three dozen funds, with total assets of about $14 billion, that specialize in stocks of banks, brokers, insurers and other companies whose principal product is money.

The mere mention of them in this context threatens to violate the guiding principles of this column shun short-term trading, avoid all forms of market timing, never forecast the stock market.

So now comes disclaimer time. I’m making no predictions here. I have no idea whether or when financial stocks, and the funds that own them, might pull out of their recent slump.

But if funds like these are on your long-term buy list, or might merit consideration for that list, well, their price tag has certainly been marked down lately.