|
Indexing in Internet funds
|
 |
September 24, 1999: 5:03 p.m. ET
Internet 100 Index Fund is the second to spread Net bets across the sector
By Staff Writer Martine Costello
|
NEW YORK (CNNfn) - Paul de Leon says he has 100 good reasons why you should invest in his new Internet fund.
De Leon, manager of the Internet 100 Index Fund, said you will get 100 different chances to get in on the meteoric growth of the next Yahoo! (YHOO) or Amazon.com (AMZN). And it will be a lot less risky.
"If you want to play the sector and you're not sure who is going to be the winners and losers, buy the basket now," de Leon said. "You say, let's buy the whole index and the winners and losers will shake out. The losers won't be around, but the winners will be a larger part."
The fund started trading last week with $100,000 in assets. Its adviser, Internet 100 Advisors, introduced a new index that includes the biggest names like Yahoo! as well as Covad Communications Group, (COVD) Exodus Communications (EXDS) and Starmedia Network (STRM).
De Leon, 32, who previously managed institutional money at Loomis Sayles & Co. before launching the fund, said he will readjust the index every quarter so each stock represents no more than 4 percent.
"More stocks means more diversification," de Leon said.
The case for indexing has been argued for years in the fund industry. Defenders say it is a way to get easy diversification at a lower cost and avoid any manager turnover -- especially since active managers have had such a hard time beating the S&P 500 and other benchmarks.
De Leon thinks the same is true for Internet Index funds.
(The first Net index fund, Investec Guinness Flight Internet.Com Internet Fund, launched July 31. Efforts to reach the manager in South Africa were unsuccessful this week).
"Indexing was a natural progression," de Leon said.
It's harder for active managers in the Internet sector since the companies aren't profitable and are tough to value, de Leon said. Managers often use a price-earnings ratio, or the stock price divided by the earnings per share, to assess a company. With Internet stocks, analysts are forced to devise other elaborate techniques that are often no better than guessing, critics say.
And as far as cost goes, actively managed Internet funds can be pretty expensive, de Leon said. The Munder NetNet Fund class A shares, for example, have a front load, or sales charge, of 5.5 percent and an annual expense charge of 1.59 percent. The WWW Internet Fund has an annual expense charge of 2.50 percent.
Internet 100 Index Fund has an annual expense charge of 1 percent, which is still high for an index fund. (Compare that with Vanguard Group, a champion of low cost investing, where the 500 Index Stock Fund will set you back 0.18 percent a year). But de Leon argues that cost could drop by half as assets grow.
The Internet 100 Index Fund started trading at $10 a share, and dipped to $9.83 after Thursday's market close, a loss of 1.7 percent. While the sector has been through some tough times, de Leon is optimistic for the future.
"Some people think Internet companies will go away, but that is not going to happen," de Leon said. "I see a case where companies will get bought out or merge. Some of them may fail, but it will be because better ones took their place."
Rescuers are sifting through the rubble after a lethal earthquake left more than 2,000 people dead in Taiwan, and some U.S. mutual funds that invest in the country already are feeling the pinch.
Chip makers and other high-tech companies in Taiwan could lose about a month of inventory because of power outages and other problems, said David Semple, manager of the Van Eck Asia Dynasty Fund. That could affect third- and fourth-quarter earnings, he said.
"You have very sensitive machinery that needs to be re-calibrated," Semple said.
The fund, with $21 million in assets, is up 56.7 percent year to date as of Aug. 31 and has about 10 percent of its portfolio in Taiwan, according to Morningstar and Semple. For the week ending Thursday, the fund was off 2.52 percent, Morningstar said.
Even before the earthquake, supply in the chip sector had been tight because of stronger-than-expected demand for PCs and other electronic goods, he said.
"The whole supply chain has that kink in it," Semple said.
While the Taiwan market has been closed since the earthquake, the Van Eck fund is feeling the pinch already because it owns global depositary receipts, which are similar to American depositary receipts and trade in London. The fund also has 3 percent of its portfolio in a closed-end fund that trades in New York, the ROC Taiwan Fund (ROC).
For the long term, Semple remains optimistic about Taiwan's market. But looking ahead, some manufacturers may look at the nation's seismic activity and choose to locate operations in China or Singapore. Time will tell, he said.
"The fundamentals are good," Semple said about Taiwan. "I don't think the earthquake will hold it back for long."
The stock market was battered with severe losses this week, leaving some analysts sounding decidedly bearish. And stock funds had estimated outflows of $600 million for the five trading sessions as of Wednesday, compared with inflows of $1.1 billion in the previous week, according to California researcher Trimtabs.com.
One fund expert, Doug Fabian, editor of Fabian Investment Resources, went so far as to issue a sell recommendation on domestic stock funds. He's advising a higher cash position.
"It's time to stand aside and wait for a new buying opportunity," Fabian said. "There are times when 'cash is king,' and right now, our indicators point to lower stock prices ahead."
Meanwhile, some investors used the stock losses to venture back into gold, which has been all but cast aside in the bull market. Here are some winners and losers for the week in Lipper Analytical Services' gold fund category.
At the top of the list is Van Eck Gold/Resources Fund, class A shares, up 9.27 percent for the week Sept. 16 to Sept. 23 and down 6.91 percent year to date; followed by U.S. World Gold Fund, up 9.1 percent for the week but down 11.83 percent year to date; and Fidelity Select Gold Fund, up 9.06 percent for the week and up 1.54 percent year to date.
The three top losers were Midas Investors Fund, up 1.47 percent for the week but down 2.13 percent year to date; followed by Vanguard Gold & Precious Metals Fund, up 4.19 percent for the week and up 16.67 percent year to date; and Sogen Gold Fund, up 4.28 percent for the week and up 0.36 percent year to date.
-- Staff writer Martine Costello covers mutual funds for CNNfn.com. If you have any comments about mutual funds you can contact her at cnnfn.interact@turner.com
|
|
|
|
|
 |
|
