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Lowering the tech risk
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July 16, 1996: 2:28 p.m. ET
New fund says it balances volatile sector with established holdings
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NEW YORK (CNNfn) - If you are enticed by the technology sector's high returns but frightened of its volatility, you might want to consider Principal Preservation's new index mutual fund.
Wisconsin-based Principal Preservation (800 826 4600) launched the PSE Tech 100 Index Portfolio fund in June. The fund, which matches the 100 listed and over-the-counter stocks from 15 high-tech sectors included in the Pacific Stock Exchange Technology Index, is billed as diverse enough to protect investors from single-issue dives aggressive enough to deliver high returns.
That, of course, is no guarantee investors will not have to weather the storms currently raging through U.S. stock markets.
In its first six weeks, the PSE Tech 100 fund has fallen about 12 percent. That plunge mirrors losses in most major indexes and by other technology funds. The average science & technology fund, for example, is off 11.31 percent since July 5, according to Lipper Analytical Services. And the S&P 500 is barely above break-even for the year.
"This is a long-term vehicle," PSE Tech 100 fund manager Jay Ferrara told CNNfn. "Technology is where you're going to find the product development and the profits. Right now, technology is down because of some weakness in earnings. To me, that's a buying opportunity. The sector is not going to go away."
The fund, with only $2.5 million in assets, carries a 4.5 percent load. Expenses are currently being waived as the fund establishes itself, Ferrara said. The minimum investment is $1,000.
Principal Preservation, a relatively small fund company, launched the new fund to capture the growing number of investors who want to buy into technology stocks without risking their retirements on such high-flyers as Netscape Communications Corp. and Iomega Corp.
What Ferrara and his fellow fund managers decided on was a fund that could capitalize on the long-term potential of the sector by building a diversified portfolio of the nation's leading technology companies. The result is a fund that matches the Pacific Stock Exchange's 100 technology stocks in 15 sectors, investing in such widely-held issues as Hewlett-Packard Co. and Cisco Systems Inc.
The Pacific Stock Exchange does not include Netscape, Iomega or many of the other trendy stocks stirring Wall Street.
"The attractiveness of the index is its diversity," Ferrara said. "Diversity mitigates risk. And by investing in what I call the blue chips of technology we have a good track record to follow."
If historic returns are any indication of future performance, the fund could fair well in the next few years. Indeed, the PSE Tech 100 index has returned an annualized 22.62 percent over the last five years, according to Morningstar. That compares to an average five-year return of 25.55 percent for the sector of technology funds and a 15.71 percent five-year return on the S&P 500 according to Morningstar.
Experts say investing is never risk-free, particularly in so volatile a sector as technology. But by placing 10 percent to 20 percent of a portfolio into the sector investors can buffer themselves without losing out on big-time profits.
There is no way of knowing how the tech stocks will react to a bear market, but Ferrara said that by investing with five and ten-year objectives in mind investors can reap significant financial rewards.
"I'm an eternal optimist," Ferrara said. "I believe in technology as a whole, and I see a widening umbrella there, is where you're going to see the growth in investments. The energy is in technology. The ideas and the new, innovative products are there." 
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