STREET WISE By Amey Stone	July 29, 1999

NEWCOMERS GALORE. The Internet Fund's two original competitors, the Munder NetNet Fund (MNNAX) and WWW Internet Fund (WWIFX), are both highly successful, although they aren't quite Net pure plays. Both hold Net infrastructure stocks as well as software companies that will benefit from the Internet. For example, Munder NetNet holds stocks such as data storage equipment maker EMC (EMC) and networking giant Cisco Systems (CSCO). That diversification strategy has tempered returns of these two funds a bit. But even so, Munder NetNet is up 46% year-to-date and WWW Internet is up 35%. Their lower, if quite healthy, returns are the price investors pay to be insulated against the steepest declines -- those that could come if high-flying Net stocks with huge losses and no near-term earnings prospects lose their allure.

Munder has an advantage over WWW Internet in that it is run by a larger, well-established firm. That means it gets access to hot new initial public offerings and that its team of portfolio managers has more research support. The largest fund in the group, Munder, is sold by brokers and has $1.3 billion in assets. By contrast, WWW Internet Fund, the only fund managed by WWW Advisors, has only $33 million in assets.

Newcomer Monument Internet, which launched late last year, is hoping to establish itself as the alternative Net pure play to the Internet Fund. To attract defectors from the Internet Fund now that Jacob has left, as well as from other technology funds, Monument has waived its sales fee for transfers through Aug. 2. The fund, which normally has a 4.75% sales charge, is up 84% year-to-date. It does include a lot of Internet names, but it also has stocks such as Sun Microsystems (SUNW), MCI WorldCom (WCOM), and Microsoft (MSFT).

Even though it doesn't have "Internet" in its name, Amerindo Technology (ATCHX) is another pure-play Net fund, says Scott Cooley, a senior fund analyst at Morningstar. The concentrated fund had virtually all of its assets in Internet stocks -- 65% were in Yahoo! (YHOO), eBay (EBAY), and Amazon.com (AMZN) alone -- the last time Morningstar checked. Cooley believes this fund may be the best choice currently for investors looking for an Internet fund, in part because it's a no-load fund and also has the best performance in the Internet group with a 102% return year-to-date. (The Internet Fund, which slipped in July, is up 86% through July 27.)

INDEX FUND PRO & CON. While the conventional wisdom is for mutual-fund investors to go with funds that have track records, there are several new offerings worth considering as more established fund companies get into the Internet game. Stein Roe is in the process of creating the Internet Leaders Fund, which it hopes to launch in the fourth quarter. And the Enterprise Group launched an Internet fund on July 1 that was already up 65% through July 26, says Victor Ugolyn, CEO of the fund company. The portfolio is managed by Fred Alger Management, a leading aggressive-growth investment firm.

A crop of Internet index funds is also being launched. At the beginning of 1999, Investec Guinness Flight started the Wired Index Fund (GFWIX), which is already up 22% year-to-date, as a broad play on the new Internet economy. And on July 30, the firm will launch the Guinness Flight Internet.com Index Fund, which is based on the 50-stock ISDEX Internet Index. E*Trade Group (EGRP) has also filed with the Securities & Exchange Commission to open a proprietary index fund based on the Goldman Sachs E-Commerce Index.

The appeal of an index fund is that its expenses are lower and investors get diversification among leading companies in the sector. Still, index funds can't provide access to IPOs, which have turbocharged returns in some Internet funds. And there is no portfolio manager at the helm to adjust for changes in market conditions. "As fast as this sector is moving, we certainly believe an actively managed portfolio makes much better sense than an index," says Ugolyn.

Fund companies that have launched Internet funds say they did so to provide investors with an opportunity to participate in one of the hottest sectors of the market. "If you want to be a fund family that focuses on areas of change, then you have to have an Internet fund in your product line," says James J. Atkinson Jr., head of the U.S. division of Guinness Flight.

Most major fund firms still find the Internet too hot to handle, however. Although Fidelity Investments has dozens of sector funds, it has no plans to offer an Internet fund, says spokesman Vincent Loporchio. "We feel that investing assets in companies with no earnings wouldn't fit our investment style," he adds. Invesco, which also has many sector funds, considers the sector too narrow. T. Rowe Price has only identified a handful of Internet stocks worth buying for its science and technology sector fund (including huge winner Softbank). "We don't feel we could put together a reasonable portfolio," says Steven Norwitz, a vice-president at the company, "at least not at the risk level most investors can handle."

Many more Internet funds will be created over the next year. But the fact that some of the biggest fund firms are still opting out is a reminder to eager investors of how volatile this sector can be. "You're taking the riskiest sector in the market -- technology -- and then taking the riskiest subsector within that and dedicating a fund to it," says Cooley. "People really need to be prepared for some serious ups and downs. I hope they are."

Amey Stone is an associate editor at Business Week Online.

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