(August 11) – “You own a technology mutual fund, and it has taken a beating so far this year,” states Karen Damato in today’s Wall Street Journal.

“Well, isn’t that pretty much unavoidable, given that the tech-heavy Nasdaq Composite Index has declined this year? No. Being in the right tech fund is more important than ever, because varying ways of betting on the Internet have made all the difference in returns this year.”

“The tech funds turning in the most dismal performances in 2000 all have the word ‘Internet’ in their names. At the bottom of the charts, Jacob Internet Fund, launched last year by Ryan Jacob, formerly manager of Internet Fund, is down more than 50% so far this year.”

“But surprisingly, managers of many of the year’s top-performing tech funds so far — up as much as 30% to 50% — say Internet-related stocks have been the key to their success.
The difference: The winners have concentrated in so-called Internet infrastructure companies — those manufacturing networking gear, data-storage systems and fiber-optics components, for instance — while mostly avoiding e-tailers, Internet-content providers and other once-hot ‘dot-com’ stocks that have recently gotten clobbered.”

“The huge disparity in tech-fund results this year illustrates the degree to which different parts of the technology-stock universe can deliver radically different performance. Unfortunately, many investors mistakenly assume that ‘tech is tech,’ says Ken Pearlman, director of research at Firsthand Funds in San Jose, Calif.”

“This year’s extreme volatility in tech stocks — with particular tech segments careening into and out of favor — also suggests that many investors might do better by picking broad tech funds that tend to end up neither at the top nor the bottom of the tech-fund performance charts.”

“Both the best- and worst-performing tech funds this year have a key feature in common, notes Christopher Traulsen, an analyst with fund-tracker Morningstar Inc. in Chicago: They took considerable risk by concentrating in particular segments of the technology universe and/or by taking big positions in a short list of stocks. At one group of funds, the bets have paid off; At the other, they haven’t, at least so far.”