BUSINESSWEEK ONLINE : APRIL 24, 2000 ISSUE
BUSINESSWEEK INVESTOR -- THE BARKER PORTFOLIO E*Trade's Shortcut to Tech Investing Call me crazy, but if you liked technology stocks in March, you'd better adore them in April. Since the tech world's days of doubt and pain, the stocks are cheaper, some of them a lot cheaper. Microsoft is off more than 25%. The same goes for such leaders as Lucent Technologies, JDS-Uniphase, and Yahoo! The problem is, can you bear to choose among them when the likes of Cisco Systems can plunge more than 10% and then recover in a day? If not, you may have a lot in common with Phil Dauterman. A 34-year-old pathologist in Guam, he's an avid amateur investor intent on speculating in tech, but smart enough to know his limitations. ''I'm really a long-term investor,'' he says, ''but tech is a sector I wanted to buy speculatively.'' Recently, he hit on what he sees as a safer, surer way to play tech stocks, the E*Trade Technology Index Fund. That shook me up. Fairly or not, safe and sure aren't words that spring to mind with E*Trade, the epicenter of so much day-trading. But I think Dauterman is on to something. The no-load fund, opened last August and one of seven that E*Trade offers exclusively to its clients, is simple and relatively cheap (table). The few other tech index funds are either expensive or narrowly focused on the Internet. There are scores of actively run funds, but few low-cost ones with seasoned stock-pickers. Of 62 actively-managed tech funds in Morningstar's database, just nine have managers with over four years' tenure. Just four of those have no load. Only one, T. Rowe Price Science & Technology, has an expense ratio under 1%. E*Trade itself has little fund experience, but it hired some good help. Barclays Global Investors, the world's first and largest manager of index funds, runs the fund day-to-day. Its goal: to track the Goldman Sachs Technology Index, a 185-stock list with many names you know, such as Intel, and some you don't, such as Net-consultant iXL Enterprises. How do these companies find their way onto the list? Many indexes, including the Dow Jones Industrials and Standard & Poor's 500-stock index (which, like BUSINESS WEEK, is a product of The McGraw-Hill Companies), are built along general guidelines aimed at making the lists reflect the leading companies in the economy and the stock market, and at ensuring that the stocks trade with plenty of liquidity. Ultimately, however, whether a stock gets on the list is up to the subjective judgment of committees. Other indexes follow pre-announced quantitative rules that are applied mechanically. IMPERFECT. That's what Goldman does with its tech index. Its rules call for Goldman each January and July to devise a universe of all stocks from six tech areas: hardware, software, networking, chips, services, and Internet. It jettisons those that trade too rarely, those without enough freely floating shares, and those that are too small (current minimum: $2.5 billion in market value). If a stock makes the cut, it is added to the index; once in, it stays, unless it drifts far from the criteria. Each is weighted by its market value, so big caps such as Intel drive the index's moves more than little iXL. ''This index is the most diversified, comprehensive way to invest in technology,'' says Goldman Managing Director Mark Zurack. No index is perfect, naturally. Gus Sauter, the Vanguard Group managing director who runs more than $221 billion in stock-index funds, says Goldman's ''is reasonably put together.'' But he also notes that its mandatory semiannual recomposition means the E*Trade fund, to stay on track, will have to sell some stocks twice a year, likely raising costs and tax bills. Sauter also says that investing in a sector fund is a bad bet. ''There's an extraordinary degree of risk in going after one sector,'' he says. ''The urge is to chase [sectors that have] been hot.'' He's right about that, and doubly right in the case of tech stocks. But for thousands of investors like Dauterman, who want to put a few chips on tech despite the risk, the E*Trade fund is a pure, efficient way to play. Questions? Comments? Send an e-mail to barkerportfolio@businessweek.com or fax (321) 728-1711 By ROBERT BARKER _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS E*Trade's Shortcut to Tech Investing TABLE: No-Work Option INTERACT E-Mail to Business Week Online

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