NEW YORK (CNNfn) - He looks like a college fraternity brother or somebody your daughter would bring home at Thanksgiving. Maybe even a character on "Friends."
But Ryan Jacob, 29, is more than a youthful face. He's the brains that transformed the Internet Fund from a $200,000 operation in somebody's house on Long Island to a $400 million powerhouse.
The fund earned 118 percent year to date as of Friday and gained 398 percent over the past 12 months, according to Morningstar, a Chicago fund-researcher.
It earned 196 percent in 1998, beating the S&P 500 benchmark by a healthy 167 percent. In the first three months of 1999 assets ballooned 1900 percent.
"I had a clear idea of where this portfolio should be positioned and where it should go," Jacob said in an interview at his New York office recently.
An amiable, easygoing man who gets to work by 7:30 a.m. and leaves after 8 p.m., Jacob is used to people commenting about his age. He likes to joke that his age is a liability -- he's too old.
"My new first name is 'twenty-nine-year-old,' because everybody mentions that first," he said.
From Philadelphia to Wall Street
Jacob grew up in northeast Philadelphia and graduated from Drexel University in 1992 with a degree in finance. An Eagle Scout, he listens to classical music with the volume turned down as he works and keeps more than a dozen small Post-It notes lined up with military precision next to his computer.
"I've been in and around the markets for a long time," he said.
He claims he has about 10 years of business experience since he participated in a five-year cooperative program at Drexel as an undergraduate. He worked as an assistant to brokers at the former Shearson Lehman and an assistant with the asset management group at Mellon Bank.
After college, he was an assistant portfolio manager in the private client group at Banker's Trust , and when some managers left to form Horizon Asset Management, he went with them.
His first taste of lucrative Internet companies came when he took over as director of research at IPO Value Monitor, which Horizon bought in 1996. He tracked start-ups like Netscape, Yahoo! and Excite while they were still private, and then watched them soar on Wall Street.
"An IPO was the big gateway for a lot of these companies," Ryan said.
A fund's modest beginning
Around the same time, Leonid Polyakov, a Russian computer programmer, had launched the Internet Fund. Polyakov was a friend of Peter Doyle, a partner at Horizon.
With Doyle's help, the fund slowly branched out from a one-man show.
Doyle's mother, Margaret, a retired school superintendent from North Babylon, N.Y., took over administrative tasks. She worked out of the home of Frank Costa, a retired postal worker, who also helped out with operations. Frank Alexander, an acquaintance of Peter Doyle, was the fund's manager.
Polyakov, Doyle, Doyle's mother, Costa and Alexander became the unconventional group of principals who formed Kinetics Asset Management, the fund's financial adviser.
"At this point, the fund had less than $200,000 in assets, and the shareholders were basically friends and family," Jacob said. "Everyone worked on the fund on a part-time basis."
By the end of 1997, the fund was up only about 12 percent and Kinetics was thinking about shutting it down. That's when Polyakov asked Jacob if he wanted to manage the fund, thinking his work at IPO Value Monitor would make him a good choice.
A new investing strategy
While Alexander invested more conservatively in companies that will benefit indirectly from the Internet, such as Intel (INTC), Microsoft (MSFT) and Motorola (MOT), Jacob wanted a more aggressive approach and jumped into what he calls "Internet-centric businesses."
As of this week, the top five holdings in the fund (in no particular order) are Yahoo! (YHOO), CMGI (CMGI), DoubleClick (DCLK), Excite (XCIT) and eBay (EBAY), he said. Because of the volatility at the fund, the top five holdings sometimes change from day to day.
Many of the companies in the portfolio are growing at a rate of 30 percent to 50 percent a quarter. Other holdings include America Online (AOL) and Amazon.com (AMZN).
"They're not all making money yet but they're all developing strong franchising operations," he said. "We're strong believers that these companies will be leaders in the field into the next century."
Too hot to handle?
Yet there are some companies Jacob is wary about.
RealNetworks (RNWK), an online broadcasting software provider, saw its stock soar 467 percent earlier this week after Donaldson, Lufkin and Jenrette initiated coverage of the stock with a "buy" rating. But Jacob is skeptical, and said the company's future depends on whether Microsoft aggressively goes after its market.
Likewise, Jacob is doubtful about Broadcast.com, the leading Internet audio and video broadcaster Yahoo! bought for $5.7 billion in stock recently. While he thinks Broadcast.com will be a good fit within Yahoo!, he questioned the company's business model as an independent business.
"Yahoo provides distribution that Broadcast.com would have difficulty achieving on its own," he said. "As a combined entity, we're favorable on the transaction and think it will benefit Yahoo! long term."
A few doubters
While Jacob has his doubts about some Internet stocks, some people still have doubts about him.
Christine Benz, a technology analyst at Morningstar, said investors would be better off buying a diversified fund with a more experienced manager.
"It's hard to say whether he's making brilliant choices because it's hard to go wrong in Internet stocks," Benz said. "It's hard to say whether he's a good stock picker or just lucky."
Bill Dougherty, an analyst at Kanon Bloch Carre, a fund research company in Boston, said Jacob's youth may give him the "try anything instinct" managers need with Internet companies. But Dougherty thinks the Internet bubble will burst someday.
"He (Jacob) is young and smart and he's got a lot of nerve," Dougherty said. "But all bubbles burst eventually
It will come back to haunt him someday."
Jacob says he knows what is at stake. He pointed out that he left his safe job at Horizon in August 1998 when the fund's assets hit $5 million to devote all of his attention to stock-picking.
World markets were roiling at the time. Russia devalued its currency and the U.S. market writhed in a correction.
"I left Horizon and gave up my shares and basically walked away with a $5 million fund under my arm," Jacob said. "I had this Internet fund that everybody said would incinerate."
Full speed ahead
The Internet Fund lost 45 percent of its Net Asset Value from July to October. But the fund, true to its Internet roots, soared in the last quarter, and the rapid growth has continued this year.
The fund had to close briefly in March while investors voted to increase the number of shares from 10 million to 50 million. And the little shop out on Long Island, Kinetics Asset Management, is selling the fund to Lepercq de Neuflize & Co., a small New York investment management firm.
Meanwhile, Jacob keeps working long hours, sometimes leaving after the market close to squeeze in a quick gym workout. He drinks health shakes he makes using a blender he keeps at the office.
Jacob is convinced the Internet is the path of the future. The only possible direction is up, he says as he watches his stock screen flicker green (for up).
"The bottom line is when you see how the Internet has affected everyone's daily lives, it's an incredible phenomenon," he said. "It's probably the greatest technological advance since the printing press."
-- by staff writer Martine Costello