NEW YORK (CNNfn) - Vertical exchange. E-business solutions. Not exactly topics that the little guy on Wall Street can wrap his hands around. But the so-called "new economy" could make a difference in your long-term portfolio, investing pros say.|
While many of the stocks in the sector have been losing up to 60 percent of their value with the Nasdaq's nose-dive, money managers have been trying to figure out which ones will flame out and which ones will be the winners after the smoke clears.
Still, two new business-to-business mutual funds are making their debuts, and dozens more mutual funds are making big bets on pure B2B plays like Ariba, VerticalNet and Commerce One.
"At the end of the day, this business-to-business on the Internet is not going to go away," said Chris McHugh, senior portfolio manager at Turner Funds, which is introducing Turner B2B e-Commerce Fund in July. "Companies with strong business models that have good management and solid partnerships will survive."
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The phrase "B2B" became a buzzword last year, when fund managers like Garrett Van Wagoner made huge gains with stocks like software company Ariba, said Chris Traulsen, an analyst at fund-tracker Morningstar.
By the end of 1999, Ariba represented 10 percent to 16 percent of Van Wagoner's funds, Traulsen said. For example, Van Wagoner Micro-Cap Growth Fund, with 16.06 percent of its portfolio in Ariba, earned 207.9 percent in 1999.
RS Emerging Growth, a fund managed by star manager Jim Callinan, also made big plays in the sector and earned 182.6 percent last year, Traulsen said.
"The original thinking was everybody thought the e-tailers would be a big wave on the Web," Traulsen said.
Depending on how you define B2B, the sector can also include infrastructure companies and broadband businesses.
But rising interest rates put a damper on expectations, and fears developed that longtime competitors wouldn't work together in the new electronic marketplaces known as vertical exchanges, said Maurice Werdegar, co-manager of OpenFund, the first mutual fund to go live on the Web.
The stocks got beaten up along with the rest of Nasdaq names, and there were also concerns about earnings, said Turner's McHugh.
Plus, many of the stocks aren't making money and need access to venture capital - but the clock is ticking, Werdegar said.
"There's a major shakeout happening," Werdegar said. "There's a tremendous amount of pain in the mutual fund world who placed bets on the new economy."
OpenFund has since sold its stake Ariba and VerticalNet, but it owns several broadband plays and companies that are building out tech infrastructure, Werdegar said.
"A lot of these stocks will consolidate," Werdegar said. "There will be some diamonds being thrown out with everything else. The trick is figuring out what is worth buying at these depressed prices."
McHugh pointed out that B2B stocks are going through the same culling that PC companies suffered in the early 1970s and that Internet search engines have experienced more recently.
Back in the 1970s there was a crowded field until a shakeup; the PC market was left with Compaq, Dell and Hewlett-Packard. More recently, Yahoo! has emerged as the dominant player in a search-engine group that includes Lycos, Infoseek and Excite.
"It's been a difficult environment, but it's time to own these stocks," McHugh said.