TWO YEARS OLD BUT ONLY $200,000: GROWTH PLAN SET FOR CYBERFUND

Shares of Internet companies like Yahoo! Inc. and DoubleClick Inc. have become the darlings of Wall Street in recent years.

Mutual funds focusing on Internet companies, however, haven’t yet captured the public’s imagination.

The Internet Fund, started two years ago by Kinetics Asset Management Inc. in North Babylon, N.Y., hopes to change that. The open-end mutual fund, which invests in 25 Internet stocks, has embarked on an ambitious strategy to grow from a paltry $200,000 in assets to at least $5 million by yearend.

“It’s a high-risk, high-reward type of fund,” says portfolio manager Ryan Jacob, a managing director at Horizon Asset Management Inc. in New York and research director for IPO Value Monitor, published by Horizon. Mr. Jacob was tapped by Kinetics in December to manage the fund because of his experience evaluating emerging Internet companies.

“He’s certainly in an ideal spot at IPO Value Monitor to have access to all the new offerings,” says Margaret Doyle, Kinetics president.

Mr. Jacob is starting by targeting Horizon’s high-net-worth clients and IPO Value Monitor subscribers. Mr. Jacob expects those clients alone to get the fund to $5 million in a matter of months. Horizon manages $400 million and its investors typically have a net worth of $5 million.

Once the fund reaches the $5 million level, Mr. Jacob plans to promote it through mutual fund supermarkets like Schwab’s OneSource program. Any fund can join OneSource, but those with less than $5 million in assets at the end of each year are charged at least $2,500.

“That will broaden our distribution significantly,” notes Mr. Jacob. Marketing the fund via financial Web sites is also being considered.

Observers, however, aren’t so optimistic about the potential for a mutual fund based exclusively on Internet shares. “It seems more like marketing hype than an investment strategy,” says Cebra Graves, Web site editor for Morningstar, a mutual fund tracking company in Chicago.

Only a few other Internet mutual funds have been launched since 1996, including WWW Internet Fund and NetNet Fund. They’ve grown to $3 million and $5.7 million, respectively. Such funds are too narrowly focused and lack the track records to attract substantial investment, says Mr. Graves.

Indeed, potential investors may balk at the Internet Fund’s 1997 returns of only 12.7%, compared with 29.6% from the Standard & Poor’s 500 Index. Since the beginning of the year, the mutual fund has posted much healthier returns of 28.9%.

But rather than broadening the portfolio, Mr. Jacob has already rejiggered it to focus even more tightly on companies that derive most of their revenues from the Internet. Out are stocks such as Microsoft Corp. and Ascend Communications, and in are Amazon.com and DoubleClick.

That strategy is intended to boost performance over last year’s level by targeting fast-growing companies. Mr. Jacob acknowledges that plans to market the fund more aggressively won’t make up for poor financial results. “It’s just as critical that our performance remains good,” he says.

Crain News Service