Wayne Owen, managing director at RhumbLine Advisers, has his seat belt fastened for the roller coaster ride of investing exclusively in Internet stocks.
His Boston-based firm is marketing an Internet index fund to plan sponsors. The fund is made up of approximately 150 e-commerce, content provider and Web infrastructure stocks.
"It's a pure Internet play," Mr. Owen said. "No Microsoft. No Intel. No Dell."
RhumbLine's largest holdings, kept to 10% or below market-cap weighting, are America Online Inc., Yahoo! Inc., Amazon.com Inc., eBay Inc., and At Home Corp. Stocks are weighted by market-cap and no one stock can become more than 10% of the total fund.
Mr. Owen believes that while pension funds are getting some Internet exposure in traditional passive equity portfolios, they are likely to be underexposed overall.
So far, back-tested quarterly returns of the fund follow the path of a yo-yo on a long string, ranging from -14.02% in the first quarter of 1997 to 96.89% in the fourth quarter of 1998. Its annualized return has been 130.32% since its Jan. 1, 1997 inception date. Over the 21/2 years ending June 30, the backtested return was 705%, while the S&P 500 index returned 92%.
As of Aug. 10, the fund has returned 71.08%, lower than 192.61% return registered on the Dow Jones Internet index. In 1999, the Dow Jones Internet index has given up more than 75% of its gains.
The difference between RhumbLine's performance and that of other Internet indexes may result from the number of stocks listed, Mr. Owen said. While he includes 150 companies in his index, Dow Jones has 40, Wilshire Associates has 100 and Bloomberg has 110. The RhumbLine index includes all stocks that derive a majority of their revenues from the Web and have market capitalizations of at least $100 million.
This is the first in a family of sector funds RhumbLine will release in the next year.