Net fund arena electrifies
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July 2, 1999: 6:00 p.m. ET
New funds debut, assets soar, and the Fed warms it up with a neutral bias
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - A year on the Internet is like a dog year. So a few weeks can seem downright frantic.
Consider the tide of news that has jolted the Internet funds arena lately. Two new funds are debuting with Wall Street veterans at the helm. Another fund is waiving a sales charge to lure in new investors and a star manager left yet another fund to venture out on his own.
A fifth fund has seen its assets soar about 10,000 percent in a year.
Meanwhile, the Federal Reserve lit a match under Internet stocks this week when it inched away from a future rate hike.
"It seems like things change every day," said David Kugler, founder of the Monument Internet Fund. "I would say fasten your seat belt, because the ride isn't over yet."
Most recently, Enterprise Group of Funds introduced an Internet fund headed by respected money manager David Alger of Fred Alger Management. The fund opened Thursday.
"Alger is an old-line firm, and they've been proven in good times and in bad," said Victor Ugolyn, chief executive of Enterprise. "We believe the easy money in this sector has been made. Going forward, it will really require a proven institutional manager to determine which companies will be the survivors."
Alger said he plans to make core holdings of companies such as America Online (AOL), Amazon.com (AMZN) and Yahoo! (YHOO), with smaller names rounding out the portfolio. He expects about 60 percent of the holdings will be pure Internet plays, while the rest will be businesses that will benefit from the Internet, such as cable companies and telecoms.
"The Internet is growing incredibly rapidly," Alger said. "It's probably the most exciting part of the economy to occur since the advent of the computer itself."
The other new fund will be headed by a well-known manager in technology funds, Paul Wick of J. & W. Seligman & Co. Company officials could not comment because of Securities and Exchange Commission regulations. Wick manages the $6 billion Seligman Communications & Information Fund.
At Kugler's $49 million Monument fund, the company announced it was waiving a sales charge until Aug. 2 for shareholders of any Internet or technology fund who want to invest in the Monument fund.
Monument has a front-end load, or a sales commission, of 4.75 percent, and a so-called "12b-1 fee" for marketing and advertising costs of 0.5 percent.
Kugler said the fund wanted to lure in new shareholders after the departure of Ryan Jacob at the Internet Fund. Jacob said last week he was leaving the fund to start his own company.
"We're not trying to blast the Internet Fund," Kugler said. "We think Ryan did a great job. We admire him and we look forward to seeing what he's going to do next. But in the meantime, I decided to take advantage of some of these changes and some of the questions these changes bring up."
Jacob's last day at the Internet Fund was Friday.
"I think everybody has been surprised at the speed of evolution we've seen in the sector," Jacob said. "Usually new technologies take quite a while to catch on. The Internet has really changed the rules."
Another example of rapid change in Internet funds is what has happened to Munder NetNet Fund. The fund had $20 million in assets in June 1998. Now it has $2.1 billion, said manager Paul Cook.
Cook likes the altitude just fine, thank you.
"It's amazing -- not necessarily how large the fund is now -- how small we were then," Cook said.
But he thinks a year on the Internet is perhaps even faster than a dog's year.
"Seven years really understates it," Cook said.
Speaking of the Internet, Scudder Kemper Investments this week announced a dramatic move into e-commerce. It is closing five investor centers and consolidating its shareholder services to two locations to focus on fund sales via the Web.
"We're putting our resources toward our e-commerce strategy," said Steven Shapiro, vice president of communications at Scudder. "People want to be self-directed."
About 200 people, or 4 percent of Scudder's work force, may lose their jobs. But half those people may end up working at a company that does shareholder outsourcing for Scudder, Shapiro said. Plans aren't complete for the arrangement.
Shapiro said Scudder will focus on its Web site and phone service for shareholders. It also is examining other e-commerce enterprises, some that are potentially fund-related.
"For the self-directed investor, the Internet is hugely significant," Shapiro said.
Internet take three: Scudder isn't the only fund company that is testing the air online. A new study by Charles Schwab & Co. shows that most people who are buying and selling shares these days are doing the transactions on the Web.
According to the survey, 92 percent of customers in Schwab's "OneSource" program who plan to trade funds in the next six months will do it online.
Julie Kever, vice president of fund marketing at Schwab, said nearly 50 percent of all "OneSource" fund trades are done on the Web these days.
"It's pretty phenomenal when you think about it," Kever said.
The amount of information Schwab offers on the Internet has grown dramatically in the past two years, Kever said. There are live discussions, customizing tools, e-mail alerts and Q&As by managers, among many other features.
Schwab considers the Web one of a number of paths for customers, along with the walk-in centers and phone lines, she said.
And now a few winners for the week. Remember when small caps were in the dumps? Well, now even the biggest losers of the week are breaking even instead of showing red, according to Lipper Analytical Services. (Small cap funds were also big winners for the second quarter).
At the top of the list was Mainstay Small Cap Growth Fund, class B shares, up 10.34 percent for the week June 24 to July 1 and up 22.47 percent year to date as of Thursday; followed by TCW Galileo Small Cap Growth Fund, up 10.16 percent this week and 19.92 percent year to date; and Reserve Small Cap Growth Fund, class R shares, up 10.09 percent this week and 34.16 percent year to date.
At the other end of the list, the biggest loser was Forum Oak Hall Small Cap Contrarian Fund, which broke even for the week but is up 4.10 percent year to date; followed by Liberty CH Small Cap Fund, class A shares, up 1.06 percent this week and up 4.82 percent year to date; and Robertson Stephens Partners Fund, class A shares, up 1.29 percent for the week and up 8.67 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
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