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Microsoft
a big player
in stock mutual funds
by Andrew Leckey
Microsoft
Corp: It's everywhere, it's everywhere.
In bad times or good
times, whenever the stock of Microsoft makes a move, one out
of very four stock mutual funds moves along with it. That's how
many have it among their top holdings.
The software stock
that Bill Gates made famous is tucked away in a lot of funds
whose investors probably didn't even realize it. It has basically
been whatever a portfolio manager wishes to say it is: growth
stock, tech stock, blue-chip stock, global stock, you name it.
Choose your justification.
"It will be interesting
to see whether all of these funds will continue to hold it after
all this volatility," said A. Michael Lipper, president
of fund-tracking Lipper Analytical Services. "You may find
out whether some funds are really `closet' index funds (that
simply own a sampling of most available stocks), instead of truly
actively managed."
Rules of the technology
industry are likely to change in a legal process that may ultimately
help some technology companies, Lipper said, while hurting others
that are highly dependent on Microsoft for their business. Their
stocks, which are also in many funds, will reflect any pain Microsoft
itself may experience.
Of course, turmoil
began in tech stock funds even before a federal judge ruled Microsoft
illegally protected its monopoly. After gaining 39 percent as
a group through March 10, tech funds have since declined more
than 12 percent. The Standard & Poor's 500 gained during
that tech decline, so the so-called Old Economy hasn't been buried
by the New Economy just yet.
In the first quarter
of 2000, the average diversified stock fund gained 7 percent,
with small-cap funds outperforming big-caps. About two-thirds
of the time, small-caps prosper in the first quarter of the year.
The quarter's strongest stock groups were biotechnology and technology,
each up 18 percent.
The top-rated fund
in the first quarter, The Frontier Funds: Equity Portfolio, jumped
105 percent, thanks to small-cap technology stocks. It has experienced
volatility, gaining 49 percent last year, but declining 29 percent
in 1998 and dropping 40 percent in 1997. Note: It also has an
extremely high annual expense ratio of 19.72 percent.
"The valuation
difference between the large-cap and small-cap stocks is still
enormously wide, and the real money in the next three years is
definitely in small-caps," predicted James Fay, portfolio
manager for The Frontier Funds, Equity Portfolio.
The hottest stocks
in Fay's 23-stock portfolio were Mitek Systems, Digital Video
Systems, Cell Robotics and Zixit Corp.
Second-ranked Perkins
Discovery Fund, just two years old, gained 64 percent in the
quarter, thanks to gains by Damark International, Radyne Comstream,
United Shipping & Technology and Intranet Solutions (a stock
it recently sold).
"We're
in Minneapolis and end up owning more companies from the upper
Midwest than any other part of the country, and because we're
local, we're more likely to find out what's really happening
with them," said Daniel Perkins, co-portfolio manager of
Perkins Discovery Fund, who is confident that the small-cap rally
will continue for some time.
Third-place American
Heritage Fund increased 62 percent. A whopping three-fourths
of its portfolio is in Senetek Plc., developer of a drug for
male impotence and a beautification cream. The remainder is in
ADM Tronics Unlimited, a firm in medical design products that,
for example, makes a tiny apparatus to reduce the effects of
ringing of the ear.
This volatile fund
makes big bets on the few stocks it likes, which doesn't always
work. It declined 32 percent in 1999 and fell 61 percent in 1998,
though it gained 75 percent in 1997.
"I always point
out the risk, and if someone says he doesn't like my style, I
say, "Look, there are 10,000 other funds you can invest
in,'" said Heiko Thieme, portfolio manager for the American
Heritage Fund. "Don't get excited by any one quarter, but
don't write us off either."
The top-performing
stock funds in the first quarter of 2000, according to Lipper,
were:
- Frontier Funds, Equity Portfolio, Pewaukee, WI; $1.8 million in assets; 800-231-2901; 8 percent front-end "load" (sales charge); annual expense ratio of 19.72 percent (though manager Fay says it is coming down "probably into single digits"; minimum initial investment $500; up 105 percent.
- Perkins Discovery Fund, Wayzata, MN; $2.2 million; 800-998-3190; 4.75 percent load; 2.5 percent expense ratio; $2,500 minimum; up 64 percent.
- American Heritage Fund, New York; $6 million; 800-828-5050; no-load; $2,500 minimum; 5.85 percent expense ratio; up 62 percent.
- Munder Framlington Healthcare Fund-Class B, $132 million; 800-438-5789; declining back-end load; $250 minimum; 2.36 percent expense ratio; up 47 percent.
- Dreyfus Premier Greater China Fund-Class A., New York; $6 million; 888-338-8084; 5.75 percent front-end load; 1.25 percent expense ratio; $1,000 minimum; up 46 percent.
- Ivy European Opportunities Fund-Class A., Boca Raton, FL; $33 million; 800-456-5111; 5.75 percent front-end load; 2.20 percent expense ratio; $1,000 minimum; up 45 percent.
- Rydex Electronics Fund-Investor Shares, Rockville, MD; $254 million; 800-820-0888; no-load; 1.56 percent expense ratio; $25,000 minimum; up 44 percent.
- Driehaus European Opportunity Fund, Chicago, IL; $22 million; 800-560-6111; no-load; 3.85 percent expense ratio; $10,000 minimum; up 43 percent.
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