IN a year that brought big tech troubles to investors, there was one large-cap Internet-focused growth mutual fund that posted gains.
It’s the Kinetics New Paradigm fund, which gained 3.9 percent in 2000 by investing in well-recognized blue-chip companies that are using the Internet to expand distribution and reduce costs.
“The mission of the fund is based on a simple precept: Clicks and mortar,” said Peter Doyle, the portfolio manager and chief investment strategist for Kinetics. “The fund is based on our realization that the evolution of the Internet is going to create great opportunities for traditional companies that don’t, on the surface, seem to have anything to do with the Internet.”
In other words, this is the fund for investors who want exposure to the growth potential of the Internet while avoiding the dot-coms turned dot-bombs.
A list of the no-load fund’s holdings cuts to the chase immediately. There’s not a single pure dot-com in the mix. Instead, you find companies like Nextlink Communications, Meredith, IMS Health, Walt Disney and CBS.
One of Doyle’s particular favorites is The Washington Post Co, which has graced the list of top-five holdings in the fund for several months.
“The Washington Post is a company that has a good brand name and a strong, profitable core business with its newspaper,” said Doyle. “But it also owns Kaplan education centers. We believe that online education will be a very strong business in the future.”
While there are other online education companies, none of them have the financial backing of The Washington Post.
“The Washington Post stated that it will spend about $80 million on Internet initiatives each year,” said Doyle. “That’s more than the start-ups managed to raise during their IPOs. And now the capital markets are drying up as a financing source for online companies. But no matter what happens with the capital markets, The Washington Post’s Internet strategy will not be curtailed.”
Another top company in Doyle’s estimation is Fidelity National Financial, the largest title insurance company in America.
Whenever anyone buys real estate or an automobile, lawyers do a title search to ensure that the property truly belongs to the person selling it. Fidelity National conducts many of those title searches, and it used to be that they took a very long time. Since ownership information is held by municipalities, an agent was required to travel to a local courthouse and search through paper records to clear the title. But now municipalities are putting that information on the Internet.
“Computerization is making it more efficient,” said Doyle. “An agent can now do seven searches a day instead of one or two.”
Doyle admitted that while Fidelity National Financial is still a large holding in the portfolio, he has been paring the position because it has had such a great run. He does not consider it a strong candidate for buying at its current valuations.
While Doyle is looking for growth opportunities, he’s not willing to pay up.
“We look for three characteristics: Above-average return on equity, sustainability of growth and a low price,” he said. “That leaves just a very small number of companies. We have only 45 names in the fund now, and I’m quite comfortable with that number.”
fund at a glance
Name Kinetics New Paradigm
Portfolio manager Peter Doyle
Top holdings
Washington Post
Fidelity National Financial
Nextlink Communications
IMS Health
Walt Disney
One Month gain
4.56%
Phone 1-888-386-3999
Web site