It isn't surprising that one of the best-performing technology mutual funds last year short-sold stocks. Potomac Internet Short (symbol: PDISX) finished up 45.42 percent, according to mutual fund tracking firm Morningstar.

But most technology mutual funds purchase stocks as opposed to short-selling them -- borrowing shares from a broker and immediately selling them with the intention of buying them back at a lower price and pocketing the difference. The Nasdaq's 39 percent plunge in 2000 caused an overwhelming majority of technology funds to crumble. But not all of these funds finished down. Indeed, despite a poor year, a few performed well, led by innovative managers who shifted their investments to avoid the brunt of the technology sell-off.

Here's a look at some of the strategies behind 2000's best-performing technology funds and their managers' thoughts for 2001.

PLANS OF ATTACK

Peter Doyle, one of the managers of Kinetics New Paradigm (symbol: WWNPX), which finished up 3.9 percent for the year, focused on companies that benefited from new technologies rather than corporations that developed them. "The history of business shows that advances in technology are not reaped by those that make the technology, but rather those who use it," says Mr. Doyle. "Frequently, technology turns into a commodity and returns on investment are poor."

To that end, Mr. Doyle filled his fund with media, health, news, and financial services companies like E.W. Scripps (NYSE : SSP), Washington Post Company (NYSE : WPO), and Fidelity National Financial (NYSE : FNF). The result was a broader, diversified, low-risk group of companies located in the shadows of technological innovation.

For example, Washington Post Company, which spends $70 million to $90 million on Net initiatives annually, owns Kaplan, a noted leader in educational services. "When people can learn online, they will turn to brand names like Kaplan," points out Mr. Doyle. Using the same philosophy, he bought shares in Fidelity National, which owns Escrow.com, the temporary home for the assets of many corporations moving their businesses online.

And this shadow-technology strategy paid dividends for Mr. Doyle. Scripps gained 40.3 percent in 2000. Washington Post shot up 11 percent; Fidelity National surged 157 percent. Mr. Doyle says he plans on continuing to use this strategy of investing in traditional companies that benefit from technology as opposed to outright technology companies in 2001.

ICON INVESTING

Two more funds that had a similar strategy of investing in companies on the fringe of the technological revolution came from the Icon family of funds. The Icon Information Technology (symbol: ICTEX) and Icon Telecommunications and Utilities (symbol: ICTUX) funds gained 14.1 percent and 11.8 percent, respectively, in 2000. Craig Callahan, chief investment officer of Meridian Investment Management and adviser to Icon funds, says the management team also has a philosophy of buying companies on the fringe of the tech revolution.

In January and February of 2000, the Icon Information Technology fund sold stakes in several large technology companies like Qualcomm (Nasdaq : QCOM), Motorola (NYSE : MOT), and Lucent Technologies (NYSE : LU), and managers channeled the proceeds from these sales into companies like Concord EFS (Nasdaq : CEFT), a provider of electronic fund-transfer services, and Barra (Nasdaq : BARZ), a company that makes risk-management software for investors. Concord soared 70.6 percent in 2000 while Barra skyrocketed 123 percent.

And in the Icon Telecommunications fund, Mr. Callahan was able to avoid the bear market in telecom stocks by shifting more heavily into the electrical utility sector. Although Baby Bells SBC Communications (NYSE : SBC) and Verizon Communications (NYSE : VZ) were among the fund's top ten holdings as of September 30, its top four holdings were electric utilities. This was a savvy move as the Dow Jones Utility Index had a banner year, surging 51 percent in 2000.

But Mr. Callahan says for 2001 he will be looking for true technology stocks to stage a comeback, although he doesn't expect to do any buying during the next few months.

GROWTH IN MANY FORMS

For Val Jensen, manager of large capitalization growth fund Jensen (symbol: JENSX), the old tried-and-true tactic of number crunching worked, enabling his fund to rise 20.04 percent in 2000. In order to make Mr. Jensen's cut, companies from any sector must achieve a 15 percent return on equity during each of the last ten years and possess reasonable stock prices compared to the company's intrinsic value. The result is a group of stable, low-risk companies in his fund.

Several of the fund's top holdings, including medical device maker Medtronic (NYSE : MDT), design software maker Adobe Systems (Nasdaq : ADBE), and credit card information processor Equifax (NYSE : EFX), were big winners in 2000. They gained 65.7 percent, 73 percent, and 21.8 percent, respectively, proof positive that growth can be found in more than just a couple of hot sectors.

According to Morningstar's most recent data for the Jensen fund, technology stocks account for 23.7 percent of the portfolio, making it the second-largest sector represented after services, which total 24.9 percent of the fund. "In a wild market, such a strategy creates a comfortable place," says Mr. Jensen, who plans to continue using this technique into 2001.

But for the more adventurous investors who can stomach a little more volatility, Icon Information Technology and Kinetics New Paradigm might be good bets. Indeed, the managers of these funds did some creative maneuvering which allowed investors to reap gains in what turned out to be the worst year for the Nasdaq ever.