Tech stocks weigh heavy on mutual funds

Technology mutual funds climb an anemic 2.9 percent on average in the first nine months of this year and barely have a pulse in the third quarter, according to research firm Morningstar.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
2 min read
Technology mutual funds rose an anemic 2.9 percent on average for the first nine months this year and barely had a pulse in the third quarter, according to research firm Morningstar.

With tech mutual funds averaging less than a 1 percent gain in the three-month period that ended Sept. 30, some investors may wonder when the doldrums will end.

One key to ending the wondering will be solid income.

"It seems that last year there was a lot of froth, so a lot of companies were bid up pretty indiscriminately. People have learned a hard lesson, so I don't think they'll wade in and make that mistake again," said Christine Benz, a Morningstar senior analyst. "People will want to see earnings growth and not just revenue growth."

This year the Nasdaq has taken investors on a roller-coaster ride with dizzying intraday swings of several hundred points. Overall, the tech-heavy index closed down 11 percent for the first nine months of the year and 7 percent for the third quarter.

Despite the weak industry performance, a few funds managed to swim against the tide, and two managed to post gains of more than 50 percent for the year to date.

The Pimco Global Innovation A fund racked up a stellar 112 percent gain for the first nine months of the year and a 12 percent return for the three months ended Sept. 30, according to Morningstar.

The young fund, formed in December, invests in midsized growth stocks in the tech sector. One of its five largest holdings is Nortel Networks, which has gained about 20 percent so far this year and represents 2.8 percent of the fund's $224 million in assets, according to Morningstar.

Meanwhile, the Red Oak Technology Select fund gained 61.7 percent for the year and nearly 11 percent in the third quarter. One company that helped boost the fund's performance was Juniper Networks, which has soared 286 percent during the year and which accounts for 5.7 percent of Red Oak's $1.5 billion in assets.

Another winner has been Newport, a maker of components for fiber-optic networks. Its shares, which have rocketed 944 percent this year, represent 7 percent of Red Oak's assets, according to Morningstar.

Red Oak also had the unusual distinction of being one of only two tech funds to post a gain during the volatile second quarter.

For the three-month period ended Sept. 30, the top performer among tech funds was Van Wagoner Technology, which gained 18.8 percent. It rose 30.6 percent during the nine-month period.

The fund, with assets of $759 million, benefited from the success of business-to-business company Ariba. Its shares, which gained nearly 62 percent for the year, accounted for 6.3 percent of Van Wagoner's assets.