Originally created 09/29/03

Investors should stay cautious as technology funds sizzle again



NEW YORK -- Jacob Internet Fund was one of the hottest stock funds during the dot-com boom. Now, it's sizzling again - up nearly 104 percent since January.

It's not the only such fund to find new life, after dropping sharply when the tech boom went bust in 2000 and then languishing until this year. Technology funds are averaging a stellar 48.4 percent return so far in 2003, according to fund tracker Lipper Inc.

Still, investors considering a return to tech should be mindful of just how much they lost before, experts say.

"Don't chase hot sectors. At least wait until there is a market correction that gives you better timing," said Don Cassidy, senior researcher at Lipper. "The market has been up six months straight here. That doesn't happen very often."

Emily Hall, senior fund analysts at Morningstar, the Chicago-based mutual fund and stock researcher, agreed.

"If investors are jumping in now, they should understand that tech has already had a really strong run. I know some analysts remain wary of the (high) valuations and earnings potential for these companies," Hall said.

Upbeat news and outlooks from tech firms, along with signs of a strengthening economy, have been behind technology's sharp advance. Many analysts and investors believe that tech, pummeled the hardest in the bear market, has the most to gain as business conditions get better.

The tech sector has given investors several encouraging signals in September. Chipmaker Intel Corp. raised its third-quarter revenue outlook, while software maker Adobe Systems Inc. posted third-quarter earnings that topped Wall Street's expectations.

Tech funds are surging well ahead of all other sector-specific stock funds and U.S. diversified stock funds, which are those that account for companies of all size and that have either growth or value styles of investing, according to Lipper. On average, sector funds have a year-to-date return of 29.94 percent, while U.S. diversified equity funds have a return of 23.52 percent, according to Lipper.

Technology funds also account for four of the five top funds so far for 2003, according to Lipper. Besides Jacob Internet, there's ProFunds Ultra Internet Inv, with a year-to-date return of 123.99 percent; ProFunds Ultra Semiconductor Inv, with a return of 117.44 percent so far this year; and Reynolds fund, with a year-to-date return of 110.34 percent.

The best performing stock fund so far this year isn't a tech fund but, with a focus on growth-oriented equities, it's close. The Apex Mid Cap Growth, whose top holdings include Pacific Internet Ltd. and tech-holding company CMGI Inc., has a year-to-date return of 159.72 percent, according to Lipper.

Still, investing experts say that investors should try to resist the temptation to chase big past gains, which are hard to sustain.

"The performance in a particular sector can be very compelling and can also dwarf common sense," Hall said.

For investors who find buying a tech fund irresistible, Hall advises they keep their exposure minimal. Investors should never have more than 5 percent of their portfolio devoted to one particular sector, she said.

And before buying a tech fund, Hall said that investors should take into account how much technology they already own, including in their growth-oriented stock funds.