Technology funds were among the clear winners in the third quarter of 1999 - and for the first three-quarters of the year.
While the Dow Jones Industrial Average, which measures 30 large-cap, blue-chip stocks is up 15 percent for the year, and the 500-company Standard & Poor's index is up nearly 8 percent, high tech - as measured by the Nasdaq Composite Index - is up a whopping 30 percent.
And look at which industry's funds are topping the performance charts: The top-ranked fund for the past 12 months, the past five-years, and the past 10 years are all technology funds.
More of the same can be expected, market experts say.
But expect lots of volatility along with your profits.
The technology phase is twofold, says Stephen Dalton, senior vice president and portfolio manager for First Capital Group, Philadelphia. High-tech is the dominant industrial and historical trend of the late 20th century, he says. And in stock-market lingo, technology has market momentum.
"Investors are going to want to get aboard the technology train now that they've seen the third-quarter results," Mr. Dalton says.
Dalton distinguishes between what he calls "old technology," such as makers of personal computers, and "new technology," such as the Internet and bandwidth companies. The momentum, he says, is on the side of "new technology."
Charles Kadlec, market strategist for mutual-fund firm J. & W. Seligman in New York, believes investors should be overweighted in high technology.
Now, before you get nervous, says Mr. Kadlec, remember that there are numerous types of high-tech mutual funds, which means that you can choose your funds to fit your investment goals.
Internet funds are the most volatile. But they also produce the potentially highest returns. General-technology funds include companies on many outposts of science, from electronics firms to biotechnology. Several of these funds are considered "conservative" in investment style, such as the Franklin DynaTech Fund.
Telecommunication firms straddle the line between technology and utilities. But many technology funds are loaded with them. Finally, utility firms are often considered closet technology funds, stuffed with phone and telecommunication companies.
Many market analysts not affiliated with Wall Street firms agree that small investors should have at least a modest position in tech stocks, such as 5 percent to 10 percent of their overall portfolio.
The greater your tolerance for risk, "the greater your investment in technology stocks," says an analyst with Morningstar Inc., in Chicago.
Are high-technology stocks overvalued, as suggested recently by Steve Ballmer, president of Microsoft Corp.
Dalton, for his part, believes Mr. Ballmer's comments may have had more to do with an effort by Microsoft to take some of the zing out of its own red-hot earnings than from a dispassionate analytical overview of the industry as a whole.
Whatever the case, technology stocks will continue to drive the market, he says, because the sector has current history on its side.
Experts agree that the one factor that could knock the stops out from under high-tech's dominance would be significantly higher interest-rate hikes by the Federal Reserve. But for now, say high-tech analysts, the market is not factoring such a possibility into its earnings forecasts.
Top technology funds
The song remains the same when it comes to technology funds, and a growing number of investors are joining the chorus. While this sector produced a somewhat sedate 7.4 percent average gain in the third quarter, it was a smash hit compared with the losses posted by most other fund groupings. For the year, technology funds are up an average of 50 percent, according to Chicago-based fund-tracker Morningstar Inc. Fund name YTD 1-yr. Amerindo Technology D 139.9% 274.9% 888-832-4386
Van Wagoner Technology 112.8 231.0 800-228-2121
Firsthand Tech Innovators 107.5 334.2 888-883-3863
Monument Internet 103.4 N/A 888-420-9950
Firsthand Tech Value 93.7 227.3 888-883-3863
Internet Fund 90.0 270.3 888-386-3999
Janus Global Technology 82.4 N/A 800-525-8983
Firsthand Tech Leaders 69.5 192.6 888-883-3863
PBHG Tech & Comm 69.3 142.3 800-433-0051
Orbitex Info-Tech & Comm A 68.7 114.4 888-672-4839
Source: Morningstar Inc. as of 10/4 N/A - not available, newer fund.
(c) Copyright 1999. The Christian Science Publishing Society