Investors who retreated to the sidelines following the dot-com bust, may soon want to re-enter the game. "There are lots of exciting developments in technology today," says Ralph Wells, who has some 35% of his portfolio in technology. "They are not just in TV and telecom, but also in new areas such as nanotechnology. I like to have some technology in my portfolio." Indeed, the money managers and financial advisers we spoke with echo Wells' comments, pointing to several trends and new product announcements that should drive tech spending in the coming months. Some of the trends that will play out are the continued mainstream adoption of flat-panel televisions as well as the growing use of streaming video. What's more, the rollout of Microsoft's new operating system, Windows Vista, the launch of Apple Inc.'s iPhone, and the debut of Yahoo's new Panama search platform are expected to have a trickle-down effect. While Wells and other tech-minded investors may be ready for a tech revival, it's important to maintain some perspective. Though the tech-heavy Nasdaq composite index has climbed steadily since last summer, it closed at 2,415.29 at the end of last year, which is still less than half of the high-water mark reached seven years ago. And this is at a time when the Dow Jones industrial average continues its string of record-high closes. These lean years for technology stocks have naturally stunned mutual funds in the tech sector. In 2006, specialized technology funds returned about 7%, according to fund tracker Morningstar. That was well below the norm for all domestic equity funds, which gained more than 12%. Still, it's an improvement compared with its five-year average annualized return of less than 2% through Jan. 31--by far the worst performance of any stock-fund category followed by Morningstar. In the past five years, investors prospered in gold, real estate, oil, foreign stocks, small caps, and value issues-investment categories that continued to lead the way in 2006. All the while, tech stocks have crawled along, far behind other sectors. A dollar invested in the average gold fund five years ago would be worth around $3.71 now; in real estate, a dollar would have grown to about $2.04. But in tech funds? You'd now have another nickel to keep your dollar company. Part of tech's allure, however, is the phenomenal returns this sector produced in years past--particularly in the late 1990s. According to Morningstar, tech funds returned 48.07% in 1995, 54.75% in 1998, and a stellar 119.90% in 1999. But will tech turn around in 2007? Denita Gardner-Walker of Landenberg, Pennsylvania, certainly hopes so. A self-employed sales director for Mary Kay cosmetics, she has owned Waddell & Reed Advisors Science and Technology fund (UNSCX) for more than 10 years. With a degree in chemical engineering, she has remained steadfast in her belief in technology, and in technology investing. "I've seen a lot of growth in my portfolio and a good deal of that has come from this fund," she says. "I'm not at all disillusioned by the investment results of the past few years," says Gardner-Walker. "Dollar-cost averaging has come in handy." That is, she and her husband Perry, a management consultant, both invest similar amounts at regular intervals. Therefore, Gardner-Walker has bought some shares of her technology fund when tech stocks were high and some when they were low. Over the long term, this approach will lower the average cost-per-share and boost potential gains. As Denita and Perry are both in their 40s, they intend to be long-term investors as they put away money for their 10-year-old son Brandon's education and their own retirement. "Technology is certainly one of the more dynamic and innovative parts of the economy," says Jeffrey Rottinghaus, manager of the T. Rowe Price Global Technology fund (PRGTX) and the T. Rowe Price Developing Technology fund (PRDTX). "A lot of professional investors have a shorter-term horizon. As an individual investor, if you have a mutual fund, you can take a longer-term approach." That's precisely the outlook recommended by Wilbert McZeal, a certified financial planner in Los Angeles who is affiliated with AIG Financial Advisors. "I insist that my clients commit to hold their funds for longer than five years," he says. Advisable allocations So far, dollar-cost-averaging in her specialized tech fund has paid off for Gardner-Walker. With the Science and Technology fund generating average returns of almost 14% for the last 10 years, her holdings in the tech fund are now roughly one-third of her Wadell & Reed portfolio, says Marilyn Broussard, a certified financial planner with Waddell & Reed in Arden Hills, Minnesota. Broussard has advised Gardner-Walker to diversify and shift some funds to the Waddell & Reed Advisors Dividend Income A fund (WDVAX), a large-blend fund that has less than 10% of its assets in technology stocks. "Generally, my clients will have a 5% to 15% allocation to the Science and Technology fund," says Broussard, "depending on their temperament." Going for growth Of course, a sector fund is a way to get concentrated exposure to technology. But many diversified funds have significant tech holdings as well. For instance, Broussard also recommends the Waddell & Reed Adv Vanguard A fund (UNVGX), which holds a mix of large-cap growth stocks, nearly 38% of which were information technology stocks as of Dec. 31, 2006. "When I look across the investment landscape, seeking fast-growing, innovative companies with sustainable competitive advantages, I find many in the tech sector," says Conrad Herrmann, portfolio manager of the Franklin Flex Cap Growth A fund (FKCGX). Herrmann says that his multi-cap growth fund is currently overweight in technology, at about 35% of its assets. Karen Dolan, a mutual fund analyst at Morningstar, agrees that many investors will be well-served by finding their exposure to technology in a diversified fund rather than in a specialized sector fund. "Most tech funds have high expenses and inexperienced managers," she notes. Following the smart money At present, some managers with outstanding long-term records at diversified funds are putting more technology stocks into their portfolios. "Bill Miller at Legg Mason Value Fund and Bill Nygren of Oakmark Select, for example, have been scooping up tech stocks that have had tough going, such as Dell, eBay, Intel, and Yahoo," says Dolan. The current attraction of tech stocks, according to Dolan, stems from a combination of relatively low valuations and strong fundamentals. "Today's technology companies have slimmed down, cut costs, and cleaned up their balance sheets since the 1990s." She points to semiconductor manufacturer Analog Devices and communications equipment provider Corning Inc. as good examples of companies that have become more financially sound since the tech sector slumped. Another observer who's upbeat on tech is John Blood, vice president of investments at Commonwealth Financial Network in Waltham, Massachusetts. "Many corporations have a great deal of cash on their balance sheets," he says. "They are likely to use that cash for capital spending and that spending may be largely on technology." That is, cash-rich companies will invest in systems and equipment to keep productivity up in an increasingly competitive economy. More spending on technology, in turn, is likely to benefit stocks in that sector. "Pricing power is coming back at some technology companies," says Lincoln Anderson, chief investment officer and chief economist at LPL Financial Services in Boston. If tech companies can command higher prices, they may enjoy plumper profits and return to favor on Wall Street. Balancing act Even if an upturn is in the cards, Dolan is not recommendi ng that investors load up on tech-heavy funds. "The signs are pointing in the direction of a tech comeback," she says, "but if and when that will happen is unknown. Your best approach might be to rebalance your portfolio by cutting back on your value funds which have performed very well and increasing your growth funds, including those holding technology companies." Portfolio rebalancing is also urged by Anderson. "It's time to worry about your winners," he says. "Assets that have had big runs can shift in the other direction." All the areas that have been leaders recently, including foreign stocks and value stocks and small caps, may be riskier now than they were five years ago. Think big Large-cap technology stocks currently look "pretty attractive," to Rottinghaus. He notes that toward the end of an economic cycle when interest rates are relatively high, smaller companies have more difficulty accessing the funds they may need to grow their business. Larger companies will have the capital to withstand the effects of a slowing economy. Along those lines, small caps may be in for a year of slower growth, compared with the giant firms in the S&P 500 Index, according to Anderson. "Nasdaq might do even better than the S&P 500," he says, "because of strength in technology." Home runs Just as investors might do well to move some money from small-cap to large-cap funds, it also may be time to lighten up on funds holding foreign stocks. Anderson believes that some of the money now flowing into foreign stocks, after five straight years of outperformance, stems from the momentum of investors who are chasing what's been hot rather than investors who are weighing the fundamentals of the stocks. Of course with technology, investors never know what's next. But for Ralph and Cheryl Wells, it's a growing nest egg to fund their retirement and the education expenses of their children Amari, 12, and Evan, 7. "Some areas of technology are little known but may eventually become important, just as the Internet became suddenly popular," says Wells, a project manager for a large technology firm in Dallas. "Take the area of content management, for example. Companies such as Disney may want to target certain demographics for specific products. Wireless technology will make this possible--this is an area that might really take off. FUND NAME TICKER 1-YR RETURN % 3-YR RETURN % 5-YR RETURN % MINIMUM INITIAL PURCHASE PHONE Technology Jacob Internet JAMFX 16.24 19.44 24.42 2500 888-522-6239 Matthews Asian Technology MATFX 21.29 17.92 15.24 2500 800-789-2742 Royce Technology Value Service RYTVX 8.53 -1.26 9.72 2000 800-221-4268 Waddell & Reed Adv Science & Tech A UNSCX 7.57 13.57 7.2 500 800-366-5465 T. Rowe Price Global Technology PRGTX 10 10.38 7.15 2500 800-638-5660 Diversified Emerging Mkts T. Rowe Price Em Eur & Mediterranean TREMX 34.74 40.7 37.35 2500 800-638-5660 Quant Emerging Markets Ord QFFOX 31.5 29.28 30.44 2500 800-326-2151 Excelsior Emerging Markets UMEMX 33.79 30.95 28.34 500 800-446-1012 Evergreen Emerging Markets Growth A EMGAX 46.21 31.68 28.23 1000 800-343-2898 Foreign Large Blend RS Emerging Markets A GBEMX 35.79 32.87 28.02 5000 800-343-0817 AllianceBernstein Intl Growth A AWPAX 25.04 22.88 20.29 2500 800-227-4618 Rochdale Atlas RIMAX 33.26 25.65 19.73 1000 800-245-9888 Phoenix Foreign Opportunities A JVIAX 29.3 24.48 18.25 500 800-243-1574 Henderson Intl Opportunities A HFOAX 28.03 21.49 18.06 500 866-343-6337 Foreign Large Growth Janus Overseas JAOSX 47.21 32.21 19.19 2500 800-525-0020 Marsico International Opportunities MIOFX 23.95 20.01 17.68 2500 888-860-8686 Columbia Marsico Intl Opp A MAIOX 23.34 19.92 17.4 2500 800-321-7854 Fidelity Advisor Diversified Intl A FDVAX 16.6 18.2 16.16 2500 877-208-0098 Forward International Equity FFINX 34.4 21.29 15.95 4000 800-999-6809 Foreign Large Value Quant Foreign Value Ord QFVOX 31.03 24.69 23.55 2500 800-326-2151 DFA Intl Value II DIVTX 34.42 26.02 22.41 2,000,000* 310-395-8005 AllianceBernstein Intl Val A ABIAX 34.18 24.94 22.13 2500 800-221-5672 Dodge & Cox International Stock DODFX 28.01 25.56 20.78 2500 800-621-3979 Thomas White International TWWDX 31.8 25.84 19.22 2500 800-811-0535 Large Blend CGM Focus CGMFX 14.95 17.42 17.25 2500 800-343-5678 Janus Contrarian JSVAX 24.58 21.01 15.69 2500 800-525-0020 Tocqueville TOCQX 17.05 14.05 12.59 1000 800-697-3863 MassMutual Select Focused Value A MFVAX 19.65 11.11 12.33 0 888-309-3539 Fidelity Advisor Industrials A FCLAX 14.86 16.63 12.27 2500 877-208-0098 Large Growth Columbia Marsico 21st Century A NMTAX 18.53 15.99 15.9 2500 800-321-7854 Marsico 21st Century MXXIX 18.65 16.1 15.83 2500 888-860-8686 Amana Trust Growth AMAGX 15.41 19.51 11.34 250 800-728-8762 Legg Mason Growth Trust Primary LMGTX 0.62 3.45 10.46 1000 800-822-5544 Fidelity Fifty FFTYX 11.13 9.83 9.86 2500 800-343-3548 Large Value Pioneer Cullen Value A CVFCX 16.63 14.71 13.92 1000 800-225-6292 Hillman Focused Advantage HCMAX 12.3 16.09 13.9 5000 800-773-3863 Hancock Horizon Value A HHGAX 18.03 17.31 13.87 1000 800-259-1926 Yacktman Focused YAFFX 16.13 7.83 13.69 2500 800-525-8258 Yacktman YACKX 15.95 7.96 13.27 2500 800-525-8258 Mid-Cap Blend RS Value A RSVAX 16.37 18.89 23.11 5000 800-766-3863 Kinetics Paradigm WWNPX 27.81 21.52 20.39 2500 800-930-3828 Hodges HDPMX 17.77 19.78 17.95 250 866-811-0224 Fidelity Select Defense & Aerospace FSDAX 20.66 19.36 16.96 2500 800-544-9797 Empiric Core Equity A** EMCAX 11.03 13.58 15.49 5000 888-839-7424 Mid-Cap Growth FBR Small Cap FBRVX 28.49 19.76 20.78 2000 888-888-0025 Baron Partners BPTRX 21.55 25.54 16.82 2000 800-442-3814 Delaware American Services A DASAX 14.84 14.01 15.22 1000 800-523-1918 Legg Mason Opportunity Prim LMOPX 13.41 11.25 14.33 1000 800-822-5544 Thornburg Core Growth A THCGX 18.1 18.5 13.9 5000 800-847-0200 Top five funds by category and top 10 specialty technology funds ranked by five-year return. Only distinct non-institutional shares open to new investors with a minimum initial investment of no more than $5,000 were considered. Data through 1/9/2007. FUND NAME TICKER 1-YR RETURN % 3-YR RETURN % 5-YR RETURN % MINIMUM INITIAL PURCHASE PHONE Technology Fidelity Select Software & Comp FSCSX 24.92 10.39 6.83 2500 800-544-9797 Wasatch Global Science & Technology WAGTX 15.95 9.01 6.72 2000 800-551-1700 Turner New Enterprise TBTBX 9.32 10.72 6.69 2500 800-224-6312 RS Internet Age A RIAFX 2.45 6.51 6.66 500 0 800-766-3863 Henderson Global Technology A HFGAX 10.36 10.62 6.62 500 866-343-6337 Mid-Cap Value ICON Materials ICBMX 19.46 20.82 16.11 1000 800-764-0442 Phoenix Mid-Cap Value A FMIVX 26.3 17.88 15.22 500 800-243-1574 Delafield DEFIX 20.38 15.53 14.86 5000 800-221-3079 Fidelity Value FDVLX 15.09 16.81 14.23 2500 800-343-3548 Wells Fargo Advantage Mid Cap Dis Inv SMCDX 18.27 15.65 13.93 2500 800-368-1030 Moderate Allocation Bruce BRUFX 17.72 25.84 29.42 1000 800-872-7823 ING T. Rowe Price Cap Apprec S ITCSX 14.64 12.93 12.63 0* 800-584-6001 T. Rowe Price Capital Appreciation PRWCX 14.54 12.16 12.22 2500 800-638-5660 Delaware Dividend Income A DDIAX 19.65 10.69 11.1 1000 800-523-1918 American Funds Inc Fund of Amer A AMECX 20.29 11.99 10.97 250 800-421-0180 Small Blend Bridgeway Ultra-Small Company Market BRSIX 1.48 11.7 21.27 2000 800-661-3550 Pacific Advisors Small Cap A PASMX 35.05 26.08 20.01 1000 800-989-6693 Gartmore Small Cap A GSXAX 29.16 25.78 19.13 2000 800-848-0920 Keeley Small Cap Value KSCVX 19.55 22.66 18.67 1000 888-933-5391 Pacific Capital Small Cap A PCSAX 17.53 16.17 17.34 1000 800-258-9232 Small Growth Royce Value Plus Service RYVPX 19.35 20.09 21.58 2000 800-221-4268 Baron Small Cap BSCFX 11.83 13.96 13.17 2000 800-442-3814 UMB Scout Small Cap UMBHX 12.07 13.86 12.5 1000 800-996-2862 Baron Growth BGRFX 15.5 15.62 12.3 2000 800-442-3814 Excelsior Small Cap UMLCX 16.35 13.59 11.93 500 800-446-1012 Small Value James Small Cap JASCX 12.49 15.13 18 2000 800-995-2637 Heartland Value HRTVX 28.02 12.52 16.5 5000 800-432-7856 Tamarack Micro Cap Value S TMVSX 21.69 17.35 16.31 1000 800-422-2766 Northern Small Cap Value NOSGX 20.28 16.8 16.16 2500 800-595-9111 Royce Opportunity Inv RYPNX 18.76 13.5 15.97 2000 800-221-4268 Natural Resources U.S. Global Investors Global Res PSPFX 22.19 33.4 41.03 5000 800-873-8637 Jennison Natural Resources B PRGNX 20.55 32.5 30.4 2500 800-225-1852 RS Global Natural Resources A RSNRX 8.11 27.38 28.02 5000 800-766-3863 Van Eck Global Hard Assets C GHACX 21.98 30.04 26.81 1000 800-826-1115 Ivy Global Natural Resources A IGNAX 25.79 27.61 25.93 500 800-777-6472 Precious Metals U.S. Global Investors WrldPrecMineral UNWPX 52.3 26.26 48.05 5000 800-873-8637 U.S. Global Investors Gold Shares USERX 50.19 23.11 41.41 5000 800-873-8637 USAA Precious Metals and Minerals USAGX 43.19 21.19 38.6 3000 800-531-8448 Van Eck Intl Investors Gold A INIVX 45.23 22.03 38.05 1000 800-826-1115 Evergreen Precious Metals B EKWBX 35.43 19.47 37.02 1000 800-343-2898 Real Estate CGM Realty CGMRX 9.01 30.46 34.24 2500 800-343-5678 Alpine International Real Estate EGLRX 38.74 30.35 29.54 1000 888-785-5578 Strategic Partners Real Estate Sec A PURAX 35.95 30.09 28.17 2500 800-225-1852 ING Global Real Estate A IGLAX 40.42 29.72 26.28 1000 800-992-0180 Phoenix Real Estate Securities A PHRAX 36.27 27.58 26.02 500 800-243-1574 World Stock' Polaris Global Value PGVFX 24.57 19.4 21.05 2500 888-263-5594 Oakmark Global I OAKGX 24.18 17.59 18.85 1000 800-625-6275 Templeton Global Smaller Comp A TEMGX 24.3 19.12 18.78 1000 800-342-5236 Delaware Global Value A DABAX 28.61 22.46 18.46 1000 800-523-1918 Vanguard Global Equity VHGEX 23.43 18.33 17.71 3000 800-662-6273 Source: Morningstar Inc. Morningstar makes every effort to ensure the accuracy and completeness of this data but cannot guarantee it. *available through 401(k) **Formerly Texas Capital Value & Growth A (tcvgx)