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"People have different ideas on how to invest in the Internet," says Peter Doyle, chief investment strategist at Kinetics Asset Management. Kinetics, which already runs its Internet Fund, launched four new Net funds at the start of the year, each focusing on a different aspect of Internet business. "We've been criticized a little bit for that," Doyle says. "But I'm comfortable with why we did it. It was largely driven by demand."

For the fund firms, it makes business sense. "People have identified a sector that should draw assets. You can look at it as either a natural outcome of the hype factory or as entrepreneurs betting on a long-term trend," says Edward Rosenbaum, director of research at Lipper. "That happens every time an industry becomes attractive. It happened in biotech, and it happened in telecom," he adds.

NET-FUND BOOM

A big reason for the growth of Internet funds is that such funds had built up considerable momentum, delivering standout performances in the previous two years. The best-performing mutual fund of 1998 was the little-known Kinetics Internet Fund, whose 196 percent rise made a minor celebrity of fund manager Ryan Jacob before he turned 30. It did better in 1999, rising 216 percent, but was bested by the 273 percent rise in the Monument Internet Fund. By contrast, the technology-crammed Nasdaq composite index rose 84 percent last year.

The fund industry took notice. New Internet funds popped up from smaller players, such as Firsthand Funds, and bigger names, such as The Goldman Sachs Group. There were just four Internet funds at the start of 1999. There are now more than 25, according to Morningstar.

And some of the funds grew sizable. Despite its relatively pedestrian rise of just 176 percent in 1999, the Munder NetNet Fund reached $11 billion in assets at its height earlier this year. The firm also launched the Munder International NetNet Fund in April, in the middle of the Internet-stock meltdown, and by mid-June, the new fund had roughly $458 million in assets. "In a down market, that's a home run," Cook says. Munder plans to launch yet another Internet fund that will invest in both public and private companies.