Internet surge triggers wave of offerings

Mutual Funds

caution is advised

Lack of record, exposure to volatility raises risks

Dollars & Sense

March 26, 2000|By Christopher J. Traulsen | Christopher J. Traulsen,MORNINGSTAR.COM

As Internet mutual funds rocketed to the top of the charts in recent years, their assets ballooned. The Internet Fund boasts a $1.5 billion asset base, and Munder NetNet has nearly $8 billion. With the combination of hot returns and huge inflows, you would expect fund companies to be champing at the bit to roll out new offerings.

Since the beginning of 1999, the number of Internet-focused funds has jumped to 28 from four, and at least nine more are on the way. Some are from established shops such as RS Investment Management and Strong. Others -- Westcott Nothing But Net fund comes to mind -- have come out of nowhere.

It may be tempting, but investing in yesterday's winners is seldom a formula for success. In the Internet universe, that's doubly true. Only three funds have been around long enough to have records worth glancing at. And one of them, Internet, lost manager Ryan Jacob in mid-1999 (he left to start Jacob Internet) so its record before then isn't terribly meaningful. Also, the past three years have been an extraordinary period for Internet companies. Expecting Internet funds to behave similarly in the future could be a giant mistake.

Some folks swear by index funds; others claim active managers are the way to go. In the end, it boils down to personal preference. There are several Internet index funds to choose from.

Most Internet funds offer exposure to several segments of the Internet sector. Munder NetNet, Internet and RS Internet fall into this camp. They might emphasize certain segments at different times, but you'll rarely see them putting all their eggs in one basket.

A newer breed of fund focuses on specific subsegments of the Internet. Kinetics Asset Management offers Internet Emerging Growth, Internet Global Growth and Internet Infrastructure. Munder Funds has a global offering in registration, Munder International Internet, and Firsthand Funds has Firsthand e-Commerce, which specializes in companies that "are involved in or support e-commerce."

Amerindo has just registered Amerindo Internet B2B, which will focus on the super-trendy business-to-business Internet sector.

If the idea of a narrowly focused fund appeals to you, look before you leap. Bear in mind that in the fast-moving, instant-gratification world of Internet stocks, today's buzzword can be tomorrow's chopped liver. If you buy a fund dedicated to one specific area and that area tanks, so will your fund.

This is where most Internet funds fall down. Many Internet-fund managers have little experience managing mutual funds or technology-oriented accounts of any kind. And some are from shops without much in the way of research resources.

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