Chasing Hottest Funds Might Lead Nowhere.

Investors who like to chase the top-performing mutual funds of the moment are faced with a tempting choice right now.

Health and biotechnology funds are the obvious standouts of 2000. A half dozen funds specializing in health and biotech stocks have jumped 75 percent or more, year to date.

To anyone with a predilection for momentum investing, this may scream "buy, buy, buy!" And what party-pooper would argue with the sky's-the-limit promise of gene science that comes with today's healthcare funds?

I'm going to bring up one misgiving, though. The history of the performance game in mutual funds isn't a happy one. The record is full of hard, cold numbers that demonstrate what disappointing things can happen to investors who buy hot funds.

Sheldon Jacobs, publisher of the No-Load Fund Investor newsletter, has done similar research on sector stock funds specializing in single industries or areas, of the economy. For instance, he says, total assets of the Fidelity Select Biotechnology Fund more than quintupled from the end of 1990 to the end of 1991, as the fund racked up a 99 percent investment return.

Once everybody was on board, Jacobs noted, the fund produced these returns over the next three years: down 10.5 percent, up 0.7 percent, down 18.2 percent.

"Notwithstanding their often excellent performances, surprisingly few sector fund investors actually pocket large gains," Jacobs says in his Guide to Successful No-Load Fund Investing.