Five Hot Funds: Should You Bail or Hold On?

There are two kinds of speculative mutual fund. One type may be worth a permanent spot in your portfolio. The other type requires you to get out while the getting is good.

While you'd want to limit any sector fund with a speculative bent to 5% or less of your portfolio, some may be worth holding on to because they have enough strengths to convince you they will be winners more often than not--even though you'll experience big losses and gains along the way. Other high-risk funds tend to have too many fundamental weaknesses to offer any hope that they'll work out over the long haul. When these weaker speculative funds enjoy a big rally, it’s time to take the profits rather than pushing your luck.

Many of this year's top performers fall into the latter camp. Here are some of the names topping the latest leaders' lists, and my take on whether you should hold or fold.

ProFunds Ultra Internet (INPIX)
This fund is up about 90% for the year to date. It rates as one of the riskiest funds on the planet. Because Internet stocks aren't risky enough, this fund uses leverage to target returns that represent 150% of the performance of the Dow Jones Internet Index. Believe it or not, the fund is down more than 60% annualized over the trailing three years despite this year's big rally. On top of that, the fund charges a rather pricey 1.98% expense ratio. This one is a no-brainer: Take your profits and get out.

 Amerindo Technology 
This fund is almost as risky as the fund above. It's not leveraged, but it makes massive bets in speculative stocks. At the beginning of the year, it had 47% of assets in  eBay (EBAY),  Expedia (EXPE), and  Yahoo . The fund has decent management, but the portfolio is so volatile that it's tough for investors to make good use of it even when they sensibly limit the fund to a tiny weighting. On top of that, it charges 2.25% in expenses, which is too much for any fund. So, take your profits.

 Jacob Internet (JAMFX)
Ugh. This fund is up about 67%, yet its NAV is $1.34--down from a launch price of $10 in December 1999. With a 4.60% expense ratio and a thin research staff, it’s hard to see this being a long-term winner. So get out before you lose more.

 RS Information Age (RSIFX)
This fund is clearly better than those above--though that's not saying much. Its 1.68% expense ratio is pricier than I like, but it's much better than those above and roughly in line with the category average. Lead manager Jim Callinan is a seasoned hand when it comes to investing in tech, and he’s built a strong record. I wouldn’t buy in after a rally, but this is probably worth keeping as a small part of a portfolio.

 GenomicsFund 
Up 60% this year, this mutual fund is more of a gimmick than an investment. It's original name was GenomicsFund.com because they wanted to attract naïve investors playing the Internet and genomics trends when the fund was launched right at the bubble's peak in March 2000. Earlier this year the fund fired its old manager and hired Satuit Capital. That's a real upgrade, but the fund is still a gimmick.

Poll Results
Last week, I asked you who your favorite was for Manager of the Year. (Space constraints limited the number of managers to five.) This is how you voted:

38%  Bill Fries
24%  The Primecap crew
23%  Bill Miller
  8%  Richie Freeman
  7%  David Williams