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Andrew
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Biotechnology Funds Hit A Cold Spot
By Andrew Leckey
What
goes around comes around again and again. Stock mutual funds
investing in biotechnology were hot in the first half of 2000.
Unfortunately, except
for a couple of other bright spots, most everything else went
stone cold.
Although health/biotech
funds were up 39 percent, natural resources funds increased 13
percent, and real estate funds rose more than 12 percent, the
average U.S. diversified stock fund gained a meager 3.65 percent.
Furthermore, funds specializing in Asia and technology, previously
high rollers, stumbled badly.
"Investors should
really go out and celebrate that it wasn't worse for diversified
funds, considering how stung the stock market has been over the
past year," said A. Michael Lipper, president of the Lipper
Analytical Service fund-tracking firm. "Similar circumstances
in the first half of 1998 led to a breakout in the market in
the second half, while in 1976 they led to a market breakdown."
Since valuation of
each unique biotech firm is based on potential revenues and earnings,
it makes sense to invest through a fund rather than individual
stocks, Lipper believes.
Meanwhile, rising rents
and the absorption of office and retail space bode well for real
estate stocks, he said. The only risk is that construction of
more offices and malls could lead to oversupply again.
Biotechnology stocks
began the year on an upswing, suffered a correction and than
came roaring back on the announcement of a dramatic breakthrough
by public and private programs to sequence much of the human
genome, or genetic code. Many companies are actively involved
in putting raw genetic information to use in developing drugs.
As a result, Dresdner
RCM Biotechnology Fund rose 27.32 percent in the quarter and
73.68 percent for the first half, thanks to gains by its holdings
Millennium Pharmaceuticals, Waters and COR Therapeutics. "We
advise that any investor who wants to be diversified put no more
than 10 percent of assets in biotechnology, due to its volatility,"
warned Michael Dauchot, co-portfolio manager of Dresdner RCM
Biotechnology Fund. "While we tend to trade more in smaller
names without established earnings, we have a buy-and-hold strategy
on larger companies with high earnings visibility and strong
product pipelines.".
Orbitex Health &
Biotechnology Fund, up 29.32 percent in the quarter and 71.36
percent for the year, benefited from the swift rise of Genome
Therapeutics, Orchid Biosciences, Protein Design Labs, Myriad
Genetics and Cytogen.
"This is a sector
of high volatility that attracts `hot money,' but we're dedicated
investors in there for the long run," asserted Tim Bepler,
portfolio manager of Orbitex Health & Biotechnology Fund,
"Research and development projects in the works for the
past five or 10 years have finally been coming to fruition, so
these companies are going to start being profitable."
Mother
Earth also served up profits. The doubling of the price of natural
gas since the beginning of the year, based on rising demand and
reduced supply, increased the value of the State Street Research
Global Resources Fund by 27.20 percent in the second quarter,
bringing its half-year gain to 47.15 percent.
The biggest stock gainers
for that fund have been Clayton Williams Energy, Western Gas
Resources, Basin Exploration, Newpark Resources and R & B
Falcon.
"One of the strengths
of our fund is that it doesn't correlate to the Standard &
Poor's 500, and while it does have high volatility, it isn't
related to any other type of volatility," said Dan Rice,
portfolio manager of State Street Research Global Resources Fund.
"Besides natural gas, there's an outstanding outlook for
oil as well."
The top-performing
stock mutual funds in the second quarter, according to Lipper,
were:
- GenomicsFund.com, Richmond, VA; $13 million in assets; "no-load" (no sales charge); $2,000 minimum initial investment; 800-527-9525; up 39.01 percent.
- Orbitex Health & Biotechnology Fund, Class B shares, New York; $150 million; back-end load; $2,500 minimum; 888-672-4839; up 29.32 percent.
- Dresdner RCM Biotechnology Fund, San Francisco; $269 million; no-load; $5,000 minimum; 800-726-7240; up 27.32 percent.
- Schroder Micro Cap Fund-Investor Shares, New York; $60 million; currently closed to new investors; 800-344-8332; up 27.24 percent.
- State Street Research Global Resources Fund, Class A shares, Boston; $130 million; 5.75 percent "load" (sales charge); $2,500 minimum; 800-882-0052; up 27.20 percent.
Shrewd
investment in underappreciated small companies provided Schroder
Micro Cap with momentum, thanks to tech firm Keithley Instruments
and energy stocks Comstock Resources and Key Production.
"These are aggressive
investments in entrepreneurial companies that represent the spirit
of American enterprise," said Ira Unschuld, portfolio manager
of Schroder Micro Cap Fund. "Since it's important with micro-caps
to take profits when a stock hits your price target, we do have
a fair degree of turnover."
The best-performing
funds for the first half of the year were:
- Schroder Micro Cap Fund-Investor Shares (see above); up 80.22 percent.
- Munder Framlington Healthcare Fund, Class B shares, Birmingham, Mich.; $175 million; back-end load; $250 minimum; 800-438-5789; up 74.82 percent.
- Monterey Murphy New World Biotechnology Fund, Santa Monica, CA; $11 million; no-load; $1,000; minimum; 800-251-1970; up 72.49 percent.
- Orbitex Health & Biotechnology Fund. Class B shares (see above); up 71.36 percent.
