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Funds that love the Internet
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March 26, 1999: 6:01 p.m. ET
But some experts wonder about such concentrated bets in a few big names
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NEW YORK (CNNfn) - Small investors may be in love with Internet stocks, but some of Wall Street's fund managers seem to be just as star-struck.
Nearly two dozen mutual funds owns such a big stake in Internet darlings Yahoo!, Amazon.com and America Online that it accounts for 11 to 18 percent of their entire portfolios, according to Morningstar, a Chicago fund-tracker.
One fund, Amerindo Technology Fund, reigns at the top with a 43.40 percent stake in Yahoo!.
The romance seems to be paying off so far -- many of the funds earned at least 40 percent in the past year as of March 19 owning one, two or all three stocks, Morningstar said. Amerindo earned 168 percent.
But some industry experts are worried about such a concentrated bet, even if Yahoo (YHOO), Amazon.com (AMZN) and America Online (AOL) have all soared as much as 1,300 percent in the past year.
"Risk has paid off in the last few years," acknowledged Bill Dougherty, an analyst at the Boston firm Kanon Bloch Carre. "But with extreme concentration comes a tremendous amount of risk."
Dougherty said the Internet obsession reminds him of investors' love affair with biotechnology in the early 1990s. Biotech funds were soaring, as companies made the covers of magazines with the promise of new wonder drugs.
"The next thing you knew they were down 60, 70, 80 percent."
Beaten-down value manager Jean-Marie Eveillard at the SoGen Funds said it looks like he isn't getting a new boss any time soon.
French bank Societe Generale, parent of Societe Generale Asset Management Corp., decided to hang onto the fund unit after Liberty Financial Cos. in Boston backed out of buying it recently.
Liberty, which had planned to buy SoGen Funds for $216 million, blamed plunging asset levels for its change of heart this month.
Assets in SoGen's International, Overseas and Gold funds have dropped from about $5.03 billion in April 1998 to $2.8 billion today, or about 40 percent.
"Societe Generale has said 'We will not shop you around,' " Eveillard said Friday. But if the right unsolicited offer comes along, things could change fast, he said.
The biggest fund, the International fund, with $2.18 billion in assets, is down 0.91 percent as of Thursday year to date, falling short of the S&P 500 by 4.41 percent, according to Morningstar.
The fund lost 0.26 percent in 1998, missing the benchmark by 28.84 percent, Morningstar said. It earned 8.54 percent in 1997, missing the index by 24.81 percent.
Another question mark is the status of merger plans between Societe Generale, French bank Paribas, and Banque Nationale de Paris (BNP). Societe Generale and Paribas were planning a merger when BNP announced a hostile bid for both banks.
Eveillard said it's not clear whether SoGen Funds would be for sale again if BNP is his boss.
In the meantime, Eveillard is waiting out a bad ride as value stocks get hammered in favor of big growth companies.
And while investors might be upset to see their holdings plunge, Eveillard knows what it feels like. He invests all of his personal money in the funds.
"We've been on the side of value investing for the past 20 years, and value has been on the wrong side for the past 4 years," Eveillard said. "If you were not in the big growth stocks, you were left with crumbs."
But as dark as things appear, he isn't giving up hope that the outlook will improve.
"There is no doubt in our mind that value will come back."
It was a busy week for mutual-fund merger news. Several fund companies announced plans to combine, merge or close fund operations.
Invesco Funds Group asked shareholders to approve closing three funds and merging eight others as part of a reorganization. The group would close Invesco's Emerging Markets Fund, Worldwide Capital Goods Fund and Environmental Portfolio and reimburse shareholders.
The merged funds would include several that focus on international, small cap and bond markets, among others.
First Union Corp. (FTU) and Everen Capital Corp. (EVR) announced plans to combine Everen's Evergreen Funds with First Union's Mentor Investment Group. Mentor has a family of funds as well as private accounts. The combined business will have assets of $70 billion.
And Banc One Investment Advisors Corp.'s Pegassus Funds will partner with Bank One Corp.'s (ONE) The One Group family of funds. The new fund family, called One Group Mutual Funds, will have $56.2 billion in assets.
Lastly, within the battered realm of small cap funds, some names are coming up with positive returns.
The top three winners in Lipper Analytical Services' small cap category are MAS Small Cap Growth Fund institutional shares, up 2.42
percent for the week March 18 through Thursday and up 43.8 percent year to date as of Thursday; Van Wagoner Emerging Growth Fund, up 2.15 percent this week and 43.16 percent year to date; and Van Wagoner Post-Venture Fund, up 1.99 percent this week and 44.54 percent year to date.
But there are still plenty of funds struggling.
The three losers in the category are Norwest Advantage Small Company Growth Fund class I shares, down 4.84 percent for the week and off 10.71 percent year to date; Jundt U.S. Emerging Growth class C shares, down 4.78 percent this week and losing 8.75 percent year to date, and AmSouth Small Cap Fund class B shares, down 4.72 percent this week and off 20.02 percent year to date. 
-- Staff writer Martine Costello covers mutual funds for CNNfn Interactive. If you have any comments about mutual funds, you can contact her at cnnfn.interact@turner.com
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