The ability to influence and improve both our business and personal lives has made technology one of the most rapidly growing sectors of our economy over the past decade. From iPods to digital cameras and camera phones, from personal computers and HDTV to wireless networks and the Xbox, technology has become increasingly integrated into the structure of everyday life.

Electronic commerce and consumer electronics are two of the tech sector's most impressive growth areas in recent years. Although many believed e-commerce would be just another casualty of the dot-com collapse in 2001, online retailing has steadily gained ground since 1999, experiencing significantly greater growth than traditional retail sales. While year-over-year total retail sales in the U.S. were up 5% in Q3 '06, online sales were up 21% in that same 12-month period. The comparison becomes even more stark when you compare overall growth. Between Q4 1999 and Q3 2006, retail sales are up 21% compared with 429% for online sales.

The popularity of consumer electronics is all around us—Apple sold it's 100 millionth iPod in april 2007, digital camera sales are expected to reach 82 million units worldwide in 2007 (a 7% increase over 2006), and Nintendo sold nearly 2 million units of its Wii game consoles within the first four months of its release. Cellphones are another area of steady growth for the technology sector. New functions are driving new demand (e.g., camera phones, music phones, text messaging, etc.), with worldwide shipments reaching an all-time record of 1 billlion units in 2006, representing 25% year-over-year growth.

Another factor in the technology sector's growth is a rapidly growing market for its products. Consider China, where low levels of consumer electronic ownership combined with strong economic growth means a huge potential market for high-tech goods and services. China's consumer electronics market is expected to grow by 48.5% between 2005 and 2008. It is projected that one out of every three mobile phones sold in 2009 will be in the Asia-Pacific region, with China and India alone accounting for nearly 200 million units in 2007.

Cellphones are a good example of what many technology industries offer: investment opportunities at multiple points along the food chain. For example, as adoption rates and shorter replacement cycles drive up unit shipments of handsets, an obvious play on that trend is to invest in the companies that market the end product. But actual cellphone sales are just the last link in the handset food chain. Other businesses also benefit from the increased sale of cellphones: the chip manufacturers that supply the integrated circuits that make cellphones work, the EDA software companies whose products enable the circuit design, and even the packaging suppliers (see Figure 1). At Firsthand, our industry experience helps us understand and identify some of the more indirect beneficiaries of technology's growth.

Firsthand technology sector funds invest solely in high-tech companies, both domestic and foreign, that specialize in a wide range of industries including semiconductors, e-commerce, communications, networking, security, and software. Some of these companies produce the popular consumer electronics we're all familiar with: personal computers, cellphones, and PDAs. But, as discussed above, many are the companies behind the brand names— the companies that supply the vital components that make the latest gadgets run: sensors, LCDs, microprocessors, and intellectual property.

Sector funds enable you to gain exposure to a sector without having to research hundreds of individual stocks. This advantage, however, must be weighed carefully against the risks associated with sector investing. Technology funds, like other sector funds, can be a volatile investment. Because Firsthand technology funds are non-diversified and concentrate their investments in the technology sector, the funds are best suited for investors who are willing to accept the risks associated with sector investing.

For example, a broadly diversified portfolio can often minimze the risks posed to the portfolio by any single sector by investing in hundreds of stocks across several sectors. On the other hand, even though a sector fund may have 50 or 100 or 150 stocks in its portfolio, it is still 100% exposed to one sector. So, while a sector fund has maximum exposure to sector-specific growth, it has maximum exposure to sector-specific risk as well. This is one of the reasons why a sector fund should never comprise 100% of your investments, but should instead represent a small fraction of your total portfolio.

Please use the links at left to learn more about a particular Firsthand technology fund. For more information on sector investing and how a Firsthand sector fund might fit your investment needs, please read, "Firsthand Funds and Your Portfolio."

Firsthand Funds currently offers three no-load technology sector funds. We believe that there are several aspects of our investment approach that are worth considering.

We are headquartered in California's Silicon Valley.

We believe in the importance of firsthand industry experience to successful technology investing. The members of our investment team have technical degrees and years of work experience in the technology sector.

We have built an extensive network of industry contacts through our collective years of service with technology companies.

Unlike some technology sector funds that focus on single industries, such as semiconductors, each Firsthand Fund spreads its investments across several different industries within the technology sector.