Techs back in favor?

June 28, 2001: 3:28 p.m. ET

Analysts caution investors against jumping back into tech stocks

NEW YORK (CNNfn) - The U.S. Court of Appeals' reversal Thursday of a lower court's antitrust ruling to split Microsoft into two provided Wall Street with a rare piece of positive technology news, but analysts caution investors against jumping the gun and quickly throwing their weight behind tech stocks.

"We're still watching to see what the ruling means. It will lift some of the burden off Microsoft, but it doesn't end things," said Paul Cook, portfolio manager at Munder Capital Management.

"I think they'll be two sets of reactions from investors," Cook continued. "Those that have a large position, or have been building a large position in Microsoft (MSFT: up $1.71 to $72.85, Research, Estimates), will be pleased to see that things are going in the right direction with the litigation. But others will be worried about the implications of the ruling on the competitive landscape."

A combination of continued market volatility, a corporate landscape littered with dead dot.coms, and sustained layoffs in the technology sector, saw wary investors flee technology stocks in recent months in search of safer havens.

Technology funds, for example, have been the worst performers of any category this year, down 25.23 percent, according to funds-tracker Morningstar.

But experts say today's ruling is not likely to reverse that trend anytime soon.

"Microsoft is really quite under-owned by technology funds coming into the year. Most of them has really pared back on the stock, and many tech funds missed most of Microsoft's big move up so far this year," said Catherine Benz, technology funds analyst with Morningstar.

Click here to read the Appeals Court ruling
Benz said the Microsoft news will not boost the fortunes of other software companies, or the tech sector as a whole.

"I don't think the ruling is going to make a whole lot of difference this year to the current performance of tech funds. This is such a company specific situation – both in terms of Microsoft's dominance in the software sector and the anticompetitive case against it," Benz said.

The technology sector will remain volatile, Benz said, making technology stocks unattractive picks for investors.

"Fund managers are asserting that a slowdown in telecom spending is here for foreseeable future. As far as investors needing a dedicated technology fund in their portfolio, it's not essential because many growth funds will give the exposure and diversification they need, without the risk," said Benz.