Tech Funds Rebound on Earnings Surprises


Investors last week shifted money from money market funds and U.S. treasuries to technology stocks as some companies' fourth-quarter earnings beat expectations.

The average technology fund we track gained 2.5% in the five trading days ending Feb. 5, excluding inverse funds that sell short technology and Internet stocks. (Stock Quote: AMZN), which surged 26.4% in the five trading days, had its best holiday season ever. In the latest quarter, the company increased net income by 8.7% to $225 million from a year earlier on $6.7 billion in sales, up 18%.

Adding to its sales of digital music and videos, has expanded its offerings to include a library of more than 600 casual games at a sub-$10 price point. The company also will begin collecting payment-processing fees on its Amazon Flexible Payments Service in June.

At 34.4% of assets, is the largest holding of Internet HOLDRs Trust (Stock Quote: HHH), the best-performing technology fund, gaining 11.7% last week. Yahoo! (Stock Quote: YHOO), the fund's second-biggest holding, rose 15.1% after it announced it was shutting its "Briefcase" storage service. eBay (Stock Quote: EBAY), up 7.8% for the period, integrated its payment-processing system with Moneybookers USA.

Ultra Semiconductor ProShares (Stock Quote: USD), the second-best-performing technology mutual fund, up 11.67% on 200% leverage, and Semiconductor UltraSector ProFund (Stock Quote: SMPIX), the sixth-best performer, up 10.49% on 150% leverage, track stocks in the Dow Jones U.S. Semiconductor Index.

Standouts among the holdings include Micron Technology (Stock Quote: MU), up 14%; Nvidia (Stock Quote: NVDA), up 13%; and Texas Instruments (Stock Quote: TXN), up 12.6%. Judicial proceedings in Rambus' (Stock Quote RMBS): patent case were halted as the claims were deemed to be "unenforceable" against Micron.

The third-best-performing fund was the PowerShares NASDAQ Internet Portfolio (Stock Quote: PNQI). Its positions include Art Technology Group (Stock Quote: ARTG), which also beat earnings expectations, popping 28.7% last week. Another holding, Shutterfly (Stock Quote: SFLY), up 24.8%, announced a 10% revenue improvement over the same period. Likewise, Akamai Technologies (Stock Quote: AKAM) added 24.1% on better-than-expected earnings and revenue.

Skipping past the two inverse exchange-traded funds, the third-worst-performing technology fund last week was the Mobile Telecommunications UltraSector ProFund (Stock Quote: WCPIX), down 3.45%. The fund's largest holding, at 23.4% of assets, is Sprint Nextel (Stock Quote: S), which shed 9.7% of its value. Sprint lost a $73 million California case back in July 2008 on early-termination fees and is under the gun for a similar $1.2 billion class-action suit filed in November.

The culprits in the fourth-worst-performing fund, PowerShares Dynamic Media Portfolio (Stock Quote: PBS), which was off 3.33% last week, were Monster Worldwide (Stock Quote: MWW), losing 18.6%; Walt Disney (Stock Quote: DIS), down 12%; Comcast (Stock Quote: CMCSA), losing 9.8%; and Time Warner (Stock Quote: TWX), off 3.5%.

Monster's own Monster Employment Index, which tracks U.S. online job demand, declined 26% over the past year and bodes poorly for job prospecting in 2009. Monster's fourth-quarter revenue fell 16%. Disney's earnings declined 32% as sales slumped 8% to $9.6 billion, hurt by some consumers looking for cheaper entertainment.

Even if U.S. online retail sales growth, as estimated by Forrester Research, does slow to 11% in 2009 from 13% in 2008, that is still $156 billion in sales and an expectation of double-digit growth while the overall economy contracts.

For more information, check out an explanation of our ratings.

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