Tech Funds Look Like Slackers Compared to Biotech.

WHAT's a hotter topic than the Internet among mutual fund investors right now?

Biotechnology, that's what. In the first two months of 2000, health and biotech funds have soared an average of 28 percent, according to Bloomberg statistics, against a piddling 17 percent gain for plain old "technology" funds whose computer and telecommunications shares stand to benefit from Internet business.

At this rate, biotech funds will double their investors' money by the Fourth of July, while the tech funds won't get there until after Labor Day. It's a new world out there, and people don't like to wait.

"The growth potential of some biotech companies is impressive," said Emily Hall, an analyst who follows biotech funds for the research firm Morningstar Inc. "But I also think in the current activity there's a lot of frenzy and hype."

The top performers among biotech funds -- Orbitex Health and Biotechnology Fund, up 85 percent since New Year's Day, and the Nicholas Applegate Global Health Care Fund, up 79 percent year-to-date -- are both small funds that have been in business less than a year. So only a few investors have participated in their gains.

Not far behind, though, are the bigger and older Franklin Biotechnology Discovery Fund, up 69 percent so far in 2000, and the Fidelity Select Biotechnology Fund, up 52 percent.

Franklin Biotech, which opened in 1997, closed its doors to new investors last month as its assets reached $500 million. The 14-year-old Fidelity biotech fund, at $1.6 billion in assets, remains open, even though it has more than doubled in size since the end of 1998.

Discussion groups on the Web crackle with talk about the new boom in biotech funds.

"I'm a newbee in investing," said one recent posting on Morningstar.com. "Looks like the biotech sector is really hot. Made a little on JAGLX (the 14-month-old Janus Global Life Sciences Fund) but it seems like during the same period DRBNX (the even newer Dresdner RCM Biotechnology Fund) is doing even better. I need advice."

At the time, the Dresdner RCM fund was up 72 percent since New Year's and the Janus fund a mere 59 percent.

Biotech investors with a decade's experience have seen all this before. Fidelity Select Biotechnology, one of the few funds of its type in existence in 1989, '90 and '91, gained an average of 69 percent a year over that stretch, amid rising hopes that genetic research would lead to new treatments for disease and breakthroughs in other fields such as agriculture.

By 1992, as it became apparent that most miracles, and profits, were well in the future, the fizz went out of the biotech funds.

So let's call the current furor Biotech Boom II. Like the commotion over Internet stocks, it should be said, it's based on some significant developments in the real world.

The U.S. Human Genome Project, a scientific campaign begun in 1990 to identify and study all the genes in the human body, is due to complete its work in 2003. In the meantime, stocks of biotech companies frequently jump as new information is reported about products for treating diseases like cancer and diabetes.

Still, it can be disconcerting to see investors scrambling to buy biotech stocks and biotech funds while shunning the big pharmaceutical stocks, hospital stocks and almost everything else with ties to conventional medicine. The Bloomberg U.S. Pharmaceuticals index has dropped 20 percent in the past year.

This biotech-or-nothing attitude has investors ignoring a more conservative operator like the $10.7 billion Vanguard Specialized Health Care Fund, which is up a relatively modest 7 percent since the start of the year.

Complained one investor in an Internet discussion about the Vanguard fund, "I'm not rich enough to afford such slowness and steadiness."

When someone can talk like that about an investment that has returned 21 percent a year for the last 15 years, you know we're living in unusual times.

Chet Currier is a columnist for Bloomberg News.