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As losers in this bear market go, tech stocks don't look too bad.
The last time a market bubble popped, technology stocks melted down as much as 80%, twice the loss of the broad market. In the current one, however, the average 14.9% loss of tech-sector funds in the Morningstar database this year (as of July 30) is only about 20% worse than that of the S&P 500 Index ($INX). The group is well ahead of this cycle's worst losers, financials, which are down 80% more than the market.
"I think this is a good time to be a tech investor," said Thomas A. Laming, a co-manager of AFBA 5Star Science & Technology (AFATX), which is down only 8.6% this year. "Having said that, the time from darling IPO to out of business is getting shorter. You have to keep your eye on the ball a little more tightly."
The timing could be good because a lot of experts suggest tech stocks will lead the market rebound, as they often do. Techs also tend to outperform in the second half of the year, so if you want to venture in, now may be the time.
Not your old tech investing
But be warned: The world of tech investing has changed drastically since the last time it was hot. The days of tech startups with new technologies that become giants overnight are pretty much over. And the dominant players don't grow quickly.Technology has become just another cyclical industry, subject to the ups and downs of the economy and the product cycle. And it's one whose product cycles inexorably shrink in line with Moore's Law, the old axiom that computing power per square inch doubles every 18 months. In stocks, this means that the industry is overhauled every year and a half, and even new technologies quickly become commonplace.
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Traders, on the other hand, will find abundant opportunities through exchange-traded funds, or ETFs, that increasingly target every nook and cranny in the tech world, including leveraged inverse funds that allow you to short the group twofold.
Shop carefully
A tech investor these days, even at the fund level, has to be a shrewd shopper. This is very much a situation in which not just any mutual fund in the group will do -- it's buy one of the best or forget the whole thing.A handful of mutual funds have proved themselves clearly superior to their rivals, and Laming's is one of them. Another is Seligman Communications & Information I (SCMIX). Black Oak Emerging Technology (BOGSX), under a relatively new manager, Robert Stimpson, is showing great improvement.
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Tech stocks taking the lead?David Garrity of GVA Research and CNBC's Dennis Kneale and Jim Goldman review the prospects for tech stocks.
The ETFs for betting on tech losses are UltraShort Technology ProShares (REW, news, msgs) and UltraShort Semiconductor ProShares (SSG, news, msgs).
Broad sector a mixed bag
Tech today is more like it was in the tumultuous 1980s than in the relatively serene 1990s. Two decades ago, scores of long-forgotten hardware and software companies jousted for markets that now are dominated by just two or three. In the '90s, the entire tech group seemed to be in sync, and the Nasdaq-100's investment form, Cubes -- now called PowerShares QQQ (QQQQ, news, msgs) -- was by far the most popular ETF. Basically, it let you buy all the big techs, sit back and watch them go up.Then the Internet bubble burst.
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