Big-name stocks add clout to tech funds

  • Associated press
  • Friday, October 5, 2007 7:17pm
  • Business

NEW YORK — Investors are betting that even if the economy slows, people will still turn to Google Inc. for Internet searches and Apple Inc. for iPods.

As these and other big name stocks have soared in the past year, they have given a big boost to many technology funds. And while tech has been hot at various points since the dot-com blowup, the latest run has been more sustained.

“Your Googles and Apples of world are doing great. They’ve really been really innovative, which is what technology is sort of all about,” said Karen Dolan, an analyst at investment research provider Morningstar Inc.

In the third quarter, tech funds showed a 6.6 percent return, according to Morningstar. The funds are up 17.8 percent for the first three quarters of the year and 24.9 percent for the past 12 months.

“These funds did experience a quick rebound in 2003, but really tech funds have lagged since the bubble burst,” Dolan said.

More recently, however, tech funds managed to hold gains. And since the Federal Reserve cut short-term interest rates last month, investors might have further room for optimism.

Areas like information technology have been among the best performers in the six months after the Fed begins a cycle of cutting rates, according to Standard &Poor’s data going back to 1945. While no one can say whether the Fed’s decision to cut rates last month marked the beginning of an easing cycle, many investors think so.

Ryan Jacob, portfolio manager of the Jacob Internet Fund, contends investors have been looking to technology because of solid fundamentals.

“Valuations really had been pretty reasonable and now I think investors are putting a premium on growth given that there are other areas of the economy that are troubled,” he said.

Investors added $97 million to technology funds in August, according to fund tracker Strategic Insight. While the number is smaller than the $466 million investors put into tech funds in July, the gain is notable given the market gyrations that occurred in August amid concerns about the housing sector and souring mortgage loans.

“The fact that investors are looking at the technology sector as being a safer place to invest today means that the psychology has really come full circle,” Jacob said.

Indeed, the tech boom’s unforgiving end early in the decade left many people leery of tech investments.

“The broader trends in the technology sector are very healthy right now. The concern is whether any slowdown we see in the general economy spills over into technology demand,” Jacob said.

Despite strong returns from some key names, investors should keep tech investments to a relatively small portion of their portfolio, observers say.

“It’s a risky proposition to invest in technology. We’re clearly one of the more volatile sectors you can invest in,” said Jacob.

But growth is a big draw.

“The Apple tide, the Cisco tide, the Google tide, it’s lifting a lot of boats. Google and Apple are in the top 10 of almost every portfolio I see. That’s what concerns me a little bit about it,” Dolan said.

Dolan warns that the strong performance of some widely held stocks could mask weaknesses of some funds.

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