Taking advantage of a takeoff in telecom

Bells are ringing loud and clear for the global telecommunications industry. Wall Street, not surprisingly, is ready to pick up the phone - and the profits.

Telecom stocks, reflecting the rapid growth of the New Economy, are booming.

So it's little surprise, then, that the Bethesda, Md.-based Monument Fund Group, home to one of the flashier go-go Internet funds, recently unveiled the Monument Telecommunications Fund (888-420-9950).

Given expansions in bandwidth technology, prospective mergers and acquisitions, high-speed Internet access, and falling prices, the telecommunications sector is "one of the most exciting areas of the market in the year 2000 and beyond," says J. Michael Gallipo, Monument Telecommunications Fund manager.

"We are strong believers in the New Economy," he says, referring to the global revolution of increasingly interlinked computers and electronics.

Just a few years back, investors could choose from only a handful of telecommunications funds, or, as they had been traditionally called, "communications funds." Today, at least 19 such funds exist, according to Morningstar Inc., a Chicago-based information firm. For the 12-month period through Nov. 30, those funds tallied an average return of 48.9 percent.

The Monument Telecommunications Fund was created Oct. 1, with Mr. Gallipo installed as manager. For the two-month period from Oct. 4 through Dec. 1, the fund is up 36.5 percent after adjusting for a 4.75 percent load charge.

Monument currently offers three funds. In addition to the Telecommunications Fund, it has an Internet Fund and a Medical Sciences Fund. The minimum investment for the funds is $1,000 for regular accounts, or $250 for IRAs.

Gallipo, for his part, believes there are few if any storm clouds on the horizon for the telecommunications sector.

The first part of next year could be a tad dicey, given the uncertainties over whether computers around the world will be able to recognize the year 2000, he says.

But once past the first few months, the global economy should be on firm course he reckons, boosting telecom ventures abroad as well as in the United States.

In that regard, the current $125 billion hostile takeover bid by Britain's Vodafone Airtouch for Germany's Mannesmann is just the first of what should be many mergers within the sector, he says.

Although future mergers will likely not be as large, consolidation will continue well into the next decade, he believes. Most mergers, Gallipo adds, will probably come from abroad.

His telecommunications fund already invests in a substantial number of overseas firms, including Nokia (Finland), Vodafone (UK), Telefonos De Mexico (Mexico), Nortel (Canada), and China Telecom (China/Hong Kong).

Among Gallipo's largest US holdings are Motorola, MCI Worldcom, Lucent Technologies, Cisco Systems, and SBC Communications.

While Morningstar does not yet formally track the Monument Telecommunications Fund, because it is so new, the research firm has been upbeat about telecommunications funds in general. The sector has become so popular, in fact, that many utility funds are primarily telecommunications funds.

Still, according to one analyst for Morningstar, "sector funds should not be a person's primary or core holding." Rather, they should "serve as a small portion of a larger portfolio."

Gallipo agrees. For average investors, a telecom fund could equal anywhere from 10 percent to 25 percent of assets, he says. "The younger you are, [the] more appropriate the fund becomes as a long-range investment," Gallipo says.

At the same time, for older investors slightly skittish about the volatility of Internet funds, a telecom fund becomes a more conservative play on the New Economy, he says.

In the case of wireless Internet access, Gallipo believes that most handset manufacturers and their component suppliers should do well in the period ahead.

He adds that using the Internet to make low- or no-cost phone calls will not be viable for the time being as regulatory and quality problems inhibit expansion of this area.

(c) Copyright 1999. The Christian Science Publishing Society