The tech wreck's huge toll on fund investors
The average technology fund is still in the red since the start of 2000 and the beginning of the tech wreck. But the real story is worse, much worse — and it's something investors should remember as the Nasdaq composite climbs above 4,000 again.
The tech wreck began on March 10, 2000, when the tech-laden Nasdaq composite index hit its all-time record of 5048.62. By the end of the bear market, the Nazz had fallen to 1114.11 — a 78% decline. But fund investors were hit even harder.
How much? Currently, there are 159 technology funds, assuming you count each share class as a separate fund. Those funds are down 20.7% since 2000. In contrast, funds that track the Standard & Poor's 500 stock index have gained an average 46.2%. The technology wreck, which ran from March 10, 2000, to October 9, 2002, ripped 80% from the average tech fund, vs. 43.1% for the average S&P 500 index fund.
But wait. It gets worse. Most of the funds that were available to investors in 1998 through 2002 are gone — liquidated outright or merged into other funds. Counting each share class separately, 602 tech funds been merged or liquidated since 2000, according to Lipper, which tracks the funds. In other worlds, for every fund that survived the tech wreck, nearly four are singing with the Choir Invisible.
A few examples:
• The de Leon Internet 100 Fund lived from September 1999 through October 2000, when it was liquidated, meaning all its stocks were sold and the proceeds divvied up among shareholders. The fund gained 76% in the fourth quarter of 1999, but fell 47% in 2000 before it folded.
• The Zero Gravity Internet Fund, which began life as the E-Harmon Internet Fund, liquidated in 2001. The fund lost 40% since inception.
• The Munder NetNet Fund gained 176% in 1999, which attracted more than $1 billion in assets. The fund then dropped 90% in the following three years before it was merged out of existence.
(Read more: Fund manager Citron tries his hand in Israeli tech)
The records of those funds — and the 599 others that no longer exist — simply fall out of the averages,meaning that only the records of the survivors persist. If you account for survivor bias, the number of fund deaths after the tech wreck means that the average investor lost far more in tech than the current numbers suggest.
Tech funds weren't the only ones to suffer: according to the Investment Company Institute, the funds' trade group, diversified stock funds were stuffed with tech, as well, and those were the funds most popular with investors in the lead-up to the meltdown.
In a sample of 1,520 domestic stock funds, the ICI says, the 10% with the biggest inflows of new money had about 30% of their assets in technology stocks. In March 2000, the height of the technology bubble, 34% of the S&P 500 was in tech — so even index fund investors weren't immune.
—By John Waggoner of USA TODAY