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The Internet contrarian

Senior portfolio manager Alan Harris says there's new value in Internet stocks as he resurrects the largest Net fund.


The Internet contrarian
By Dawn Kawamoto
Staff Writer, CNET
May 29, 2000, 12:00 p.m. PT

It's tough to be a trailblazer when your familiar terrain has been torched.

But Alan Harris, a senior portfolio manager of the Munder NetNet Fund, isn't discouraged. At a time when other Internet-related funds have folded, or wiped the dot-com from their names as if it were a stain, Munder NetNet has reopened its fund doors to new investors.

Munder NetNet, launched in 1998 and one of the earlier pioneers among Internet funds, is looking to maximize the old adage of "buying low." With valuations at rock-bottom prices for a number of companies that rely on, or develop products or services for, the Internet, Munder NetNet is hoping to increase the amount of funds it has to invest in this sector.

We're finding solid values in the marketplace now for investors that are focused on a long-term Internet portfolio. But it's tough to attract investors to a sector that's taken a beating. Munder NetNet, as well as other Internet-related mutual funds, have fallen substantially. Munder NetNet fell 40.9 percent in the first quarter and shed a total of 76 percent for 2000--while in comparison, the Standard & Poor's 500 index declined 9.6 percent for the quarter and fell 9.3 percent for the year.

Technology mutual funds have seen more investors pulling money out than pumping it in. So far this year, technology funds have encountered a net outflow of $1.5 billion, according to Banc of America Securities. Munder NetNet, for example, has seen a net outflow of roughly $1 million a day for the past 45 days from its $2.3 billion fund.

Nonetheless, Harris, who joined Munder Capital Management in 1995 and co-manages Munder International NetNet and Munder Future Technology funds, feels confident technology and Internet-related stocks are here to stay. Harris, a former Comerica Capital Management equity analyst who among his personal investments includes the portfolios he manages, talked recently about the reopening of the Munder NetNet fund and his view on the industry's outlook.

Q: Why are you reopening the fund?
A: Investing in the market today is substantially different than a year ago. A year ago, we were operating in a sellers' market for Internet and tech stocks, and now it has changed to a buyers' market. We're finding solid values in the marketplace now for investors that are focused on a long-term Internet portfolio.

What has been investors' reaction on the fund's resurrection?
We don't measure success or failure by one day. But I will say we're pleased with the reaction we have received. The reaction has been positive in that investors are interested that we're zigging when everyone is zagging. Everyone has closed or merged similar funds, but we're going against the crowd, and that's been beneficial.

What are your expectations for the fund? Do you think new investors will come, given current investors are taking out more money than they're putting in?
Over the last month or so, we've experienced a moderate net outflow. So, with

By the numbers
Munder NetNet Fund's largest holdings, as of April 30:
Company Percentage
AOL Time Warner 7.05
Microsoft 6.09
Qwest 5.23
VeriSign 5.20
Internet Security Systems 4.86
Check Point Software Technologies 4.46
EMC 4.18
eBay 4.07
Micromuse 3.89
Oracle 3.70

Source: Munder Capital Management

new investors purchasing the fund, it will create the possibility for us to have net inflows. But it's difficult to predict how investors will react on an aggregated basis. We don't know what impact our recent decision will have on net inflows, but we wanted to provide the opportunity for new investors to invest in the fund given the changed market environment.

Did the net outflow of investors' money play a role in your decision to reopen the fund?
The fund flows had no bearing on our decision to reopen the fund. Throughout the (tech market) decline over the past year or so, we have never had to liquidate securities to meet (investor) redemptions. We have always had enough cash on hand.

Did the industry's consolidation affect your decision to reopen Munder NetNet? After all, there would be less competition.
The decisions made by other money managers did not impact our fund. Our decision was based on what was best for our investors and the changed market opportunities.

How would you describe the current state for Internet-related mutual funds?
It's very difficult for small mutual funds to survive in this current environment, where scale, scope, size and research expertise end up being very important to the investment process.

Even though the NetNet fund is relatively large, have you ever considered merging it with another firm's Internet fund or into another Munder fund?
We don't comment on merger talk with other parties. And we have never considered merging it into another Munder fund. The Internet sector fund and technology sector fund are viewed as two distinctly different products. And while there is some overlap with the two funds, we think investors should view them as two distinct funds.

And what about the fund buying an Internet fund from another mutual fund company?
We're the largest Internet fund in the U.S. And we're probably larger than all other Internet funds combined. So, at this point and time, we don't feel the need to pursue any acquisitions of Internet funds.

Have you changed your investment strategy amid the market's downturn?
We haven't changed our strategy since the inception of the fund. We have a broadly diversified Internet portfolio that invests in Internet pure plays, builders of the Internet, and beneficiaries of the Internet. But the tactics to manage We don't measure success or failure by one day. But I will say we're pleased with the reaction we have received. the portfolio change over time with market conditions. At the current time, the builder component of our portfolio is the largest. However, we've increased our interest in pure-play companies over the past couple of months.

What companies do you find attractive these days?
Internet security has been a focus of the fund for the last four or five years. Companies like VeriSign and Check Point Software have beaten their estimates for the quarter and maintained guidance for the coming quarters. AOL Time Warner has the largest position in our fund and has reaffirmed its guidance for the year. The company has substantial pricing flexibility with its core access, content and cable modem businesses. There were also some dot-com companies that were sold off during the dot-com carnage but had a profitable, scalable business--like eBay and Homestore.

In this difficult environment, do you plan to decrease your holdings from 70 companies?
Over the last year, we have decreased the number of our holdings to where we are comfortable with what we have. In early 2000, we had over 100 holdings.

During the month of April, the fund sold off the last of the remaining shares it owned in, Palm, Ventro and Winstar. Amazon was sold because we felt it had limited growth in its core business and was too richly valued, Palm because of concerns of slowing sales, a buildup of inventory, and increased competition, and Winstar because of difficulty in receiving financing to cover its debt payments.

Do you think you'll repurchase these stocks should their prices drop further?

Generally, we don't repurchase shares immediately after an entire position has been sold.