Every industry has its top dogs, and technology mutual funds are no different.
As the third quarter gets underway, the top three tech mutual fund portfolio managers reveal where they are placing their bets, and which stocks filled their portfolios during the second quarter.
"Business-to-business e-commerce [stocks]
Added Cook: "People have confused the Internet as the only place consumer commerce is going on, but business-to-business is larger by a ratio of 3 to 1 and is expected to go to 10 to 1 in a couple of years."
Among the companies in Cook's portfolio is networking company Cisco, which is generating an increasing portion of its revenues from business-to-business e-commerce transactions.
Excitement over the Internet space and e-business was echoed by Walter Price Jr., co-portfolio manager with Dresdner RCM Global Technology Fund, which ranked third among the top-performing tech funds during the second quarter.
Price noted that his fund has an investment in Cambridge Technology Partners, a large consulting and systems integration firm that, among its other offerings, helps companies develop a Web presence.
The optics industry is another area Dresdner considers attractive. The fund, which holds a stake in fiber optic telecommunications equipment maker Uniphase, views the optical transmission of data as a technology that could change the paradigm of electronic transmission, Price said.
The NetNet Fund's Cook said financial transaction companies like Ameritrade, Charles Schwab, and E*Trade are showing signs of doing better this quarter. Such companies are coming off a second quarter during which they didn't perform particularly well, due to investors' concerns that profit margins would get squeezed as pricing competition increased.
Formed in August 1996, The NetNet Fund has approximately $33 million in assets and 50 companies in its holdings. It focuses on companies that provide online financial transactions, security software, and hardware, or that use the Internet to leverage their business strategies.
NetNet's top ten companies for the second quarter included online bookstore Amazon.com, Internet service provider America Online, online brokerage Ameritrade, and Comdial, a computer telephony systems provider.
The fund's winners during the second quarter were portal companies, including AOL, which rose nearly 60 percent during the period, and Amazon.com, which gained more than 150 percent.
Cook noted that Amazon.com's recent expansion into the music business resulted in NetNet selling its entire stake in online music retailer CDnow last May. The fund kept its stake in music site N2K, however, reasoning that the depth of its content will make it a formidable competitor for Amazon.com.
The PIMCO Innovation Fund, which Morningstar ranked second among top performing tech mutual funds,
Stocks in the fund's portfolio during the second quarter included networking company Lucent Technologies, telecommunications software maker Saville Systems, portals America Online and Yahoo, and software giant Microsoft.
"AOL and Yahoo were enormous stocks in the quarter, and they continue to be. Microsoft also continued to be strong," said Rizza. "I think the whole top ten did really well, except for Saville."
Saville's stock, which was flat during the quarter, failed to perform as rumors about a weak financial performance swirled, he said.
Dresdner's technology fund, which ranked third, manages over $10 million in assets and holds roughly 65 stocks.
Some of the fund's larger holdings, which account for upward of 3 percent of its total assets, include Internet incubator and investment company CMG Information Services, network security software maker Network Associates, and network data storage device maker Network Appliance, Chen said. He added that the company's investments include stakes in foreign companies as well.
"The biggest challenge for a tech mutual fund manager is what do you do about the component sector. It can be a lousy or great investment," Price said. "A lot of these [component makers] are in Asia and have a low valuation. So it could be a good investment if you have the long view."