Tech-based funds downshift, but for how long?

Technology funds led the parade in 1999 - resulting in spectacular returns for those brave enough to try IPOs and Internet stocks.

And despite some qualms about sky-high valuations and last week's sharp drop of the technology-heavy Nasdaq Composite Index, very few market professionals are naysaying another year of striking gold with high tech in 2000.

Last year was "awesomely strong" for technology, and 2000 promises more of the same, says tech-watcher Stephen Dalton, senior vice president with First Capital Group, in Philadelphia.

He points out that the economy of the 21st century is being driven by technology. And no matter what happens to macroeconomic developments in the next few years, nothing is going to change that underlying thrust, especially the continuing development of the Internet.

The Internet alone, Mr. Dalton notes, is reshaping the very shape and direction of consumer commerce.

In fact, "go-go" Internet stocks were the driving force behind the massive 85 percent gain in the Nasdaq last year.

But other popular indexes are also benefiting from high tech. The technology sector accounted for about a quarter of the gains in the S&P 500 last year. And the Dow Jones Industrial Average would not have logged its substantial year-end returns without help from Microsoft and Intel, both added to the index last November.

Many growth funds (and even some value funds) are now revving up their performance by buying selected technology/ telecommunications stocks.

The most stunning growth in technology this year, Dalton says, will come from the "new technology" firms, rather than "old tech" firms.

Old tech represents computermakers and systems companies. New technology firms can be found in the Internet sector. They include companies that deal with Internet-related networking, bandwidth expansion, high-speed access, and wireless technology, among others.

Still, Dalton, like a number of technology analysts, had fretted about the possibility of a market correction at the beginning of this year, in part because of the enormous run-up in tech stocks late in 1999. Optimistically, the downturn will be only 10 percent, a traditional market correction, he says. But it could be worse, he adds, somewhat similar to the fairly prolonged downturn that pummeled many technology stocks during the late spring and summer of 1999.

But don't be dismayed by a downturn, says Dalton. Rather, see it "as an important buying opportunity," as stock prices fall and companies become more affordable. Firms that Dalton likes include Exodus Communications, Broadvision, EMC, and Nokia.

Still, some analysts prefer the conservative assurance of the old technology sector. "I like companies that make products that I can hold or handle," says Peggy Farley, who heads up Ascent/Meredith Asset Management, a financial services firm here.

"I would continue to buy selected technology stocks," even at current high prices, she says. In addition to makers of computers and chip firms, Ms. Farley likes telecom stocks and firms that are beneficiaries of electronic commerce, such as UPS.

Marion Schultheis, who heads up the growth team for mutual-fund firm J.&W. Seligman, likes firms that profit from business-to-business electronic commerce.

(c) Copyright 2000. The Christian Science Publishing Society