Technology Funds Apply Spin in Downturn
September 4, 2000
Technology funds delivering double-digit negative returns so far this year are actively trying to control the fallout.
Although their advertisements seem to have tapered off, the websites and shareholder communications of technology funds faring badly are addressing their poor performance directly, but delicately. Many point to bright spots the fund companies foresee in particular technology sub-sectors including wireless, bandwidth and cellular towers. Many are predicting a rebound and meanwhile are describing the downturn as a tremendous buying opportunity.
Technology funds have lost an average of 1.28 percent year-to-date through July 31, according to Lipper of Summit, N.J. In April alone, technology funds declined an average of 14 percent, according to Lipper. A growing number of technology funds have taken a beating since the sector's peak on March 10, according to Lipper.
Perhaps the most notable fund that has suffered a setback is the Jacob Internet Fund, managed by Jacob Asset Management of New York.
Ryan Jacob, previously the portfolio manager of The Internet Fund managed by Kinetics Asset Management of North Babylon, N.Y., led the fund to a 196 percent return in 1998 and a 113 percent return in the first six months of 1999. (MFMN 8/10/99) The fund at that time was the best-performing mutual fund ever, according to Lipper.
Since Jacob left Kinetics to manage his own fund, the Jacob Internet Fund has lost 52.9 percent year-to-date through Aug. 22, according to Lipper. His fund is the worst-performing technology fund so far this year, according to the fund-tracking firm.
Jacob, who declined to be interviewed for this story, has recently sent a number of letters to shareholders to try to allay their concerns. He has focused on predictions of third quarter financial results of the companies in which his fund is invested, telling investors he expects these to be positive and that they will bolster Internet stocks.
Jacob has also said he expects Internet companies to consolidate and that many of the companies in which he holds stock are likely to be the acquirers. Jacob has further deflected many of the questions about his fund's poor performance by making general observations about the economy and Federal interest rates.
Like many other technology funds, he has also taken a glass-half-full viewpoint, saying that his fund is now in a position to buy a number of "large, well-positioned Internet leader[s] at a deeply discounted price."
The website of Amerindo Investment Advisors of New York, which manages three technology funds, prominently describes volatility as a fact of life in the technology sector. The company has been beset by considerable volatility, its flagship Amerindo Technology Fund having delivered a year-to-date negative return of 23.51 percent as of Aug. 22, according to Lipper.
"We state pretty clearly in all of our communications that it is always a good time to invest in technology, and especially a good time when we are in a corrective phase and the popular financial press is beating up our stocks," said Keith Brown, vice president of Amerindo.
A number of new technology funds have stressed low-tech stock prices as the funds have come to market just as the high-tech sector began to fail them.
When Neuberger Berman Management of New York introduced the Neuberger Berman Technology Fund on May 1, it tried to give a positive spin to the sector's downturn.
"In some ways, volatility is good," said Andrea Trachtenberg, a Neuberger Berman spokesperson. "Many technology stocks are clearly on sale." She said the company had "great timing" in introducing this fund. From its inception through Aug. 22, the fund has returned 10.27 percent, according to Lipper.
The Munder Net Net Fund, which has returned a negative 9.2 percent year-to-date through Aug. 22, according to Lipper, is handling the volatility well, said Elyse Essick of Munder Capital Management of Birmingham, Mich.
"We focus on the companies we have invested in, noting that many are technology infrastructure companies," said Essick. "We talk with shareholders about why we invest in these companies in the first place, that they are leaders or have the potential to be leaders and that they have sound management.
"Addressing the concerns of investors in the volatile technology market starts well before you are in the midst of a volatile technology market," Essick said. Munder has done such a good job of controlling investors' expectations that the Munder Net Net Fund has had net inflows in the second and third quarters of this year, she said.