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Internet, technology charge ahead

Along with large 'cap' stocks, they're the only life of the party in

By Guy HalversonStaff writer of The Christian Science Monitor / April 12, 1999



NEW YORK

Call them mutual fund "perennials:" big-company growth stocks, often tied to technology, communications, and the Internet: Dell, Microsoft, General Electric, Intel, Cisco, Lucent, America Online.

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They are the spring flowers of the US stock market - pushing up solid profits for mutual-fund investors. And they shot up like supercharged sunflowers last winter, for the quarter ending March 31.

Internet stocks and the funds that specialize in them were, again, the awesome performers.

The Internet Fund almost doubled in the first quarter alone (see chart, below) and more than quadrupled over the last 12 months.

And while, as the standard disclaimer goes, past performance is no guarantee of future gains, such performance is nothing short of historic.

More of the same

If you missed them, no problem. Barring dramatic alterations, the same sectors and the same stocks are expected to brighten the market through June and possibly the remainder of 1999.

"We see nothing to stop the large-cap dominance," in the months ahead, says Don Ross, chief investment officer for National City Investment Management Company, in Cleveland

By contrast, almost everything else faded like last year's zinnias.

Shares of small companies, and non-technology firms generally turned in a lackluster performance. Arnold Kaufman, editor of a market report published by Standard & Poor's calls the gap "extraordinary."

While the average stock fund in the US gained about 1 percent during the first quarter, index funds linked to the large-cap Standard & Poor's 500 Index rose almost 5 percent. Communications stocks shot up 16 percent; technology funds up 17 percent; large-cap growth stocks up about 9 percent.

And don't overlook the winners from abroad. Asia is staging a comeback.

One of Wall Street's premier investment houses, Morgan Stanley, recently pronounced the end of Japan's 10-year bear market and its current recession.

And Japanese stocks seem to bear out such optimism. They jumped 14 percent in the first quarter.

The Work & Money section covered the potential rebound in Asia last Monday, highlighting markets in South Korea, Thailand, Hong Kong, and Japan.

Optimism about stability in Latin America also brought a boost to market performance there. As a group, the region's stocks rose 11.6 percent.

Meantime, pickings were lean for such out-of-favor sectors as small caps (down 9 percent by one measure) precious metals (off about 4.5 percent), and real estate (down almost 5 percent.)

Ready for a market shift

Despite the divergence, investors should stay calm. The the modest 1 or 2 percent return of most US stock funds should be seen as "remarkable," says Michael Lipper, chairman of Lipper Inc., in New York, a division of Reuters Group PLC.

Such gains follow the huge rise in the market in the fourth quarter of 1998, says Mr. Lipper. Moreover, while new money is not flowing into small-cap and value funds, most money in such funds is staying put, he says.

That leaves many mid-cap, small-cap, and value funds well positioned if the market shifts in their direction, he says.

Diversification, says Lipper, is as important now as ever. The bias to "big" could change at any moment, he says.

"It is very important to be ready" for gains from out-of-fashion investment sectors, says Russ Kinnel, associate editor of information-firm Morningstar Inc., in Chicago.