Technology leads the growth fund return

The tech wreck began nearly 15 years ago, and since then, most investors have viewed technology funds the same way they would an annoyed cobra. And with good cause: Seven tech funds are still down more than 50% since March 2000.

But the past decade has been quite good for technology investors. The average tech fund has gained 9.86% a year the past 10 years, vs. 7.99% for the Standard and Poor's 500 index, according to Morningstar. So far this year, tech has gained 4.17%, vs. 1.41% for the S&P 500.

Joshua Spencer, manager of T. Rowe Price Global Technology (PRGTX), says the technology companies that survived the bursting of the dot-com bubble emerged stronger for the experience. "Having come off the bubble, these companies, in many cases, were cutting costs, restructuring and improving their balance sheets, even when the economy was quite strong. They were like squirrels burying acorns for the winter."

Those companies were lean to begin with when the bear market started in 2009, Spencer says, and got leaner during the recession. When revenue finally began to come back in the recovery, it dropped straight to the bottom line, and stock prices surged.

In the past 12 months, the biggest winners have been computer chip makers, which have become much better at managing inventories and product cycles than they were in the 1990s. "You haven't had the inventory overshoots you used to," Spencer says. But prices of many semiconductor stocks have surged, relative to earnings, making them less attractive now, he says.

Today, the tech market is split between the cash-rich older behemoths, such as Microsoft (MSFT) and Apple (AAPL), which behave much like old-line industrial stocks. Currently, information technology pays out 14.9% of the dividends in the S&P 500 index, vs. 14.6% for financials, according to Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.

For growth investors, those companies aren't as exciting as they were at the bottom of the last bear market in 2009, Spencer says. But some companies that weren't publicly traded during the dot-com bubble are exciting – starting with Google (GOOG), which could easily see 20% revenue growth in 2016 and sells for a relatively modest 17 times earnings. "I could take that all day long," Spencer says.

More interesting to Spencer are companies that could potentially prove dominant and disruptive in their industries. Tesla (TSLA), for example, has fallen out of favor with investors. "People talk about it like it has never shipped a car yet," he says. "They view (Tesla founder) Elon Musk like he's P.T. Barnum rather than a successful entrepreneur."

Another favorite: Real estate site Zillow (Z). "Anyone selling a home demands to be on Zillow," he says. Increasingly, buyers find a home on Zillow and call a broker, rather than consulting a broker first. And that, in turn, will throw a lot of ad dollars to Zillow.

Technology already accounts for nearly 18% of the S&P 500, and investors should think carefully about whether they want to add more to their portfolio. And if you do decide to add to tech, remember that history never repeats itself exactly, but it often rhymes.