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Tech Fund Losses Go From Bad to Worse

Equities: Internet pure-plays are decimated, but even those that are more diversified are hit hard.

March 13, 2001|JOSH FRIEDMAN | TIMES STAFF WRITER

Among mutual funds, there's bad in this market decline and then there's worse--in some cases, much worse.

With Monday's plunge, technology-focused stock funds saw their already-severe losses deepen, of course. For some, that meant that their 12-month declines pushed past the 50% mark.

For others, the losses are far beyond the halfway mark and are nearing 90%.

Not surprisingly, so-called pure-play Internet stock funds or those with heavy Internet exposure have been decimated. Jacob Internet, Potomac Internet Plus, Firsthand E-Commerce and Amerindo Technology, for example, all were down more than 82% through Friday, measured from a year ago. Those funds fell further Monday.

But even among more diversified tech funds, 12-month losses have been massive, according to fund tracker Morningstar Inc. As the accompanying chart shows, the majority of funds were already down more than 50% from a year ago as of Friday. And nearly half had already fallen more than 60%--a threshold the Nasdaq composite index crossed Monday.

The only specialty tech and communications funds that have managed to gain ground during Nasdaq's downward spiral are fringe offerings with relatively low assets: The $1.6-million Potomac Internet/Short fund, for instance, has rocketed 183% in the last 12 months and 29.5% year to date by betting against Net stocks (that is, using short sales).

The $13-million Icon Telecommunications & Utilities fund gained 7.4% in 12 months by emphasizing utilities rather than telecom stocks. The $4.7-million Kinetics Internet New Paradigm has eked out a small gain through Friday by steering clear of pure Net stocks, for the most part, in favor of indirect Internet plays.

The tech carnage hasn't just hit tech-specific funds, of course. Almost any fund that has kept a heavy weighting of tech in its portfolio has been hit hard.

Several of Garrett Van Wagoner's growth-stock funds, for example, including Van Wagoner Post-Venture, Van Wagoner Emerging Growth and Van Wagoner Mid-Cap Growth, have been chopped by more than 50% this year alone. Each fund recently held about 90% of assets in technology and telecom, according to Morningstar.

His longtime shareholders may be used to the wild ride, however: The flagship Emerging Growth, for instance, lost 20% in 1997 before gaining 8% in 1998 and 291% in 1999, then sinking 21% last year.

Conversely, many of the strongest general growth stock funds recently, such as the $16.5-million Hussman Strategic Growth, the $162-million Strong Discovery and the $190-million IDEX Salomon All Cap, have fared well by keeping tech exposure below 20% of their assets.

A few general growth funds, such as the $124-million Needham Growth and $20.5-million Oberweis Micro-Cap, however, have notched gains year to date despite significant tech exposure.

So what does a fund manager do in a market like this?

Many have stayed close to fully invested, especially since new money from investors has slowed to a relative trickle, giving managers little ammo. In February, stock fund industry redemptions outpaced new investments for the first time since August 1998, according to unofficial estimates.

And despite talk on Wall Street about the near-record $2 trillion in money market mutual funds--a stash some analysts believe could be used to help fuel an eventual stock rally--cash levels at equity funds have declined in recent months.

Cash holdings of stock funds averaged 5.6% of assets at the end of January, down from 5.8% on Dec. 31 and the recent peak of 6.5% on Nov. 30, according to the funds' trade group, the Investment Company Institute. In past bear markets, such as 1990, cash levels have often averaged more than 10% before the market bottomed.

"Our mandate is exposure to tech stocks, so we stay as close to fully invested as we can," said Kevin Landis, manager of Firsthand Technology Value and several other tech-sector funds, including Firsthand E-Commerce.

But Jon Burnham, manager of the large-cap Burnham Fund, said he has been "sitting on a lot of cash for two reasons: I'm not sure what to do with it, and I want to be ready for [net] redemptions if they come."

Burnham, who said Monday that his cash level has risen to an unusually high mark of about 16% of assets, said he would rather pay more for stocks on the way up than try to call the market's bottom.

"Why should I buy IBM at $97 if it's going to be $87 next week?" he said. "We won't know when the market bottom is until long after we hit it--that's the way bear markets work. So for now, I don't want to be a buyer. When I feel better I'll be a buyer."

Though about 30% of the Burnham fund's stock assets were recently in technology, what little buying he has done lately has been in other sectors, such as real estate investment trusts, whose income component adds portfolio stability, and gas companies, whose outlook has remained relatively strong.

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