Tech-based mutual funds that loaded up on bellwether stocks such as Cisco and Microsoft fared well at withstanding the third-quarter storm that hit the markets, according to data released today by mutual fund researcher Morningstar.
Fidelity Select Computers Fund ranked first among retail tech mutual funds and managed to squeeze out a gain of 8.78 percent in the third quarter ended September 30. Its year-to-date performance showed a gain of 40.84 percent.
Ranked second among retail tech mutual funds was the Rydex Technology Investor Fund, which posted a slight loss of 0.45 percent, according to Morningstar. The fund, which had $38.8 million in assets at the end of the quarter and a portfolio of 39 stocks, was formed last April.
The Franklin Dyna Tech 1 fund ranked third with its loss of 2.35 percent for the quarter. The fund's year-to-date performance, however, showed a gain of 9.25 percent.
The average tech fund was down 10.50 percent for the quarter. But tech mutual funds as a group was up an average of 6.93 percent for the year, said Christine Benz, an equity fund analyst with Morningstar.
"It was a two-part market for tech funds this quarter, where the big-cap, liquid funds did well but the small caps were hit hard, " Benz said.
Fidelity's computer fund, for example, had Microsoft, Cisco and Dell among its top ten holdings--which represented 62 percent of the portfolio, she said.
Meanwhile, the S&P 500 Index was down 9.93 percent for the quarter and up 6.01 for the year. Although tech funds generally performed worse than the S&P 500, Benz said they nonetheless turned in respectable quarterly results given that they tend to be made up of smaller-cap companies while the S&P 500 index is made up of large-cap industry titans.
Benz noted that a few of the heavily small-cap based tech funds offered surprises, posting smaller losses than the overall average for tech funds.
"Dreyfus has some small caps in there but managed to buck the trend," Benz said. "Van Wagoner has some large caps, but, by and large, he runs his funds with a focus on small caps."
She noted also that many funds that were heavily weighted in Internet stocks fared poorly in the third quarter, such as Munder Capital Management's NetNet Fund, which lost 14.05 percent of its value in the third quarter, although it was up 24.84 percent for the year.
"A lot of the funds with Internet stocks have done well for the year but had a lousy quarter," Benz said. "Investors should look at these funds over the long term. A three-month period is a short time to gauge a fund."