NEW YORK (CNNfn) - While "old economy" stocks such as Procter & Gamble are fizzling out, fund manager Ken Mertz is finding success with "new economy" stocks such as Mercury Interactive.
Mercury started out testing Y2K systems for possible glitches, and when the millennium passed the company transformed its business into testing e-commerce Web sites.
"The marketplace for nearly six years was dominated by big-cap stocks like Procter & Gamble," said Mertz, of the HomeState Select Technology Fund. "Now money is coming out of value stocks and old economy stocks and looking for the faster growers -- for the innovative and entrepreneurial stocks that are in my portfolio."
Also in this column: Growth & income fund dividends way off in 1999 according to a new analysis; a top-performing T. Rowe Price fund closes its doors; and some top tech fund winners.
The fund, formerly called the HomeState Year 2000 Fund, earned 186.2 percent in 1999 and is up 52.93 percent this year through March 7, according to fund-tracker Morningstar. It has about $19 million in assets.
Emerald Advisers, the fund's investment adviser, announced last week it was changing the name and broadening the focus of the fund to include all technology stocks. Steven Russell will also join the fund as another manager.
While some fund pros warned that the Y2K investing theme was too narrow, and the fund is tiny compared to most of its peers, it is ranked in the 14th percentile in 1999 and the 5th percentile this year, Morningstar said.
Among the top holdings is 8X8 Inc. (EGHT: Research, Estimates), which makes chips for voice-over-Internet protocols, the technology that allows people to talk on the telephone via the Internet. Another investment is Clarent Corp. (CLRN: Research, Estimates), a maker of hardware and software for voice-over IPs.
"It's tough to say we're going to have another 1999, but we're going to try," Mertz said.
Mercury, the third-largest holding, is up 119 percent this year as of March 7, Mertz said. In the trailing 12 months, it is up about 500 percent, he said.
"The original impetus was that these companies got contracts to work on Y2K," Mertz said. "The good companies were able to transform themselves to provide services in the Internet area."
The average growth and income fund fell short of the S&P 500 for the three months ended in January, and the average dividend yield in 1999 was about a third of its level from five years ago, according to a new analysis by Value Line Elements. The funds use profits to make dividend distributions to shareholders rather than reinvest the cash like growth stocks, Value Line said.
But some top performers over the trailing five years include Janus Growth & Income Fund, Quant Growth & Income Fund, and Sit Large Cap Growth Fund, Value Line said. Investors who are more conservative can also consider Gateway Fund, Evergreen Capital Income & Growth, and Smith Barney Premium Total Return Fund, the publication said.
T. Rowe Price is closing its International Discovery Fund March 13 because asset size has ballooned in recent months.
The fund, which invests in international small-cap stocks, earned 155 percent in 1999 and is up 2.6 percent as of Feb. 29, the company said. It has assets of $1.2 billion, and took in about $348 million in January and February, the company said.
"This fund invests in stocks that have fairly limited liquidity," said Steve Norwitz, a spokesman for T. Rowe Price. "Money is pouring into the fund. Investors are totally chasing performance. The managers feel if they have to put that kind of money into the market at that pace it would undermine the investment performance."
T. Rowe Price closed its New Horizon Fund in June 1996 for the same reason. The fund invests in small-cap stocks.
Norwitz attributed the big gains in International Discovery Fund returns to soaring Japanese small-cap technology stocks.
"It's not so much the size (that is the problem) as the pace of the cash flow," Norwitz said.
The Nasdaq composite closed above 5,000 for the first time on Thursday, and many technology managers are cheering.
Eight mutual funds that invest in technology stocks are up more than 50 percent this year as of March 8, according to the latest available figures from fund-tracker Morningstar.
The top performers are Alpha Analytics Digital Futures Fund, up 80.66 percent; PBHG Technology & Communications Fund, up 64.84 percent; and Turner Technology Fund, up 55.32 percent, Morningstar said. 
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