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Hindsight is wonderful. Especially when big bucks are involved. Take Internet funds. It's hard to imagine an investor who doesn't wish he or she had purchased shares early on. With returns often in the high double- or triple-digit range, these new-frontier funds represent the stuff dreams are made of.
Depending on whom you talk to, Internet stocks are either selling at such high prices they're sure to burst or represent a new era in which technology rules at any cost. While the truth probably lies in between, future investors need to remember two basics before socking hard-earned cash into an Internet fund:
- Things change. Look at stock market history, and you'll see that periodically, a sort of mania comes along that creates new companies, whips investors into a frenzy, sends stock prices sky-high and then settles down. In the mid-1920s, for instance, the automobile industry was hot, giving rise to hundreds of companies. Over time, however, most failed. Odds are, the same thing will happen with the Internet.
- Expect volatility. Internet funds are sure to have ups and downs for years to come. "It's a young sector and volatility is a foregone conclusion," says Alexander Cheung, portfolio manager of the Monument Internet Fund.
If you're shopping for Internet funds, keep in mind there are plenty of funds that hold Internet stocks, but not all have portfolios made primarily of Internet and Internet-related securities. Here's a look at three that do:
- The Internet Fund. The top performer historically, the
fund is up nearly 118.26 percent this year alone. But a sudden
change in its portfolio management could signal changes to come.
Ryan Jacob began managing the fund in December 1997, about a year
after its inception, and picked stocks that gave a high-flying
performance. In July, Jacob left to open his own firm.
Bottom line: Top holdings include Lycos, Broadcast.com, Xoom.com, DoubleClick Inc. and Delia's. It's a no-load fund, with a minimum initial investment of $1,000, and its total expense ratio is 1.85 percent per year. Since the fund's inception, it's up a total of 570 percent.
- The Monument Internet Fund. Alexander Cheung has been
portfolio manager since its inception in November 1998. Currently,
the fund's portfolio holds about 54 stocks. Cheung likes
companies that derive at least 50 percent of revenue from the
Internet. That means the fund not only invests in technology but
sectors such as telecommunications.
Bottom line: The fund's top holdings include AOL, Security First Technologies, CMG Information Services and RealNetworks. It's a front-load fund, its maximum load is 4.75 percent, total expense ratio is 1.9 percent per year, and its initial investment is $1,000. As for performance, it has risen 175.3 percent since its inception.
- The Munder NetNet Fund. A team of five manage this fund,
and Paul Cook is its lead portfolio manager. The fund holds more
than 90 stocks.
Bottom line: Through the first half of this year, it was up 34.7 percent. Since its inception in 1996, it's had an average annual return of 71.78 percent. Most of the fund's assets are invested in three areas: technology stocks, consumer cyclicals and utilities, with top holdings including MCI Worldcom Inc., Cisco Systems Inc., AOL and Intel Corp. The maximum front-end load is 5.5 percent with an annual management fee of 1.56 percent per year; the minimum initial investment is $250.
Monument Internet Fund, (888) 420-9950, http://www.monumentfunds.com
The Internet Fund, (800) 386-3999, http://www.theinternetfund.com
The Munder NetNet Fund, (800) 468-6337, http://www.mundernetnet.com
Dian Vujovich is a nationally syndicated mutual fund columnist. Visit her Web site at http://www.diansfundfreebies.com