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Tech Industry

Wanted: Investors interested in Net-focused funds

As interest in Internet stocks cools, the mutual funds that invest in them are beginning to feel the cold shoulder.

    Investors' interest in Internet stocks cooled after last month's market downturn. Now mutual funds that invest in Net firms are beginning to feel the cold shoulder.

    iMillennium Capital Management, adviser to the Internet-focused iMillennium Fund, said today it will lower the minimum initial investment in the fund to $250 from $2,500. The fund, which came out on March 9, the day before the Nasdaq peaked, joined a crowded field that is struggling to attract investors in the wake of last month's plunge in tech stocks.

    "The short and sweet answer is 'yes,' (investments) have slowed down," said Omar Rivero, chief executive of iMillennium. "People are more inquisitive about why they should invest with you; earlier there was a feeling you could throw a dart out there, and (the stock) would go up."

    At the beginning of 1999, there were four mutual funds specializing in Internet-related companies. Now there are 34, with most launching in the second half of 1999 and early 2000, according to mutual fund research company Morningstar.

    "There are definitely more funds out there competing for the same high-risk dollars," said Darren Chervitz, a senior analyst at $229 million Jacob Internet Fund. "It's not clear how many Internet funds the market is willing to support, especially in an environment like this."

    Net mutual funds have found that while the outflow of money since the downturn has been minimal, inflow has slowed considerably.

    "Investors have seen this kind of volatility in the Internet sector before," said Brooke Connell, senior vice president at Kinetic Asset Management, which runs the $1.07 billion Internet Fund. "They probably don't want to sell at the bottom and miss the upside potential."

    While most general technology and growth funds do invest in Internet companies, investors looking for higher returns from riskier Net-focused funds may want to stick to some of the bigger players in the sector, according to Morningstar analyst Christopher Traulsen.

    "A lot of Internet funds are tiny shops where these are their only mutual funds," said Traulsen. "You really wonder about their staying power if the market takes more hits."

    Traulsen recommends looking at funds from established companies with good research staffs backed by strong resources. A fund manager's previous experience with other funds is also invaluable, especially since many Internet-focused managers have been riding a charging bull and may not have seen a bear market.