Funds of the Month

September 2, 2005

Telecom funds.

Which industry's funds are up 27 percent on average over the past 12 months (beating the 14 percent gain of the S&P by a wide margin)?

If you answered telecommunications funds, you'd be right. In fact, even though these funds endured a very rocky period during the 2000 to 2002 bear market, they quickly bounced back, managing a three-year average annual return of 27.5 percent.

What's feeding the growth? Several factors: First of all, the pace with which new wireless products are coming to market has speeded up, and consumers have proven receptive.

Some of the impetus for change in this sector is coming from new sources. Competition with cable providers is spurring traditional phone companies that already offer DSL high-speed Internet access and phone service to offer video products, as well.

And fiber-optic infrastructure providers should see growth in the next few years as money flows into this technology.

Foreign telecom companies are especially appealing, since they have almost no competition from cable companies. In Canada and many parts of Europe, telecom providers supply both phone and television service.

Options

T. Rowe Price Media & Telecommunications Fund. This fund has been in the first percentile for the 10-year period. This period takes in the telecom meltdown as well as the rebound that began in 2003. Deft management pruned the fund's stake in Millicom International Cellular before it dropped toward the end of 2004. An investment that has been a winner for the fund is Mexican wireless communications provider América Móvil, which was up 92 percent in 2004 and 31 percent so far this year. Going forward, the portfolio managers "favor wireless over wireline stocks since the former group's voice and data products will be viable alternatives in the near future."