The Internet Fund Avoiding Facebook, Rest Of Bubble 2.0

 Have you heard the one about the Internet fund that's afraid of dot-coms?

It sounds like a bad money manager joke, but that's actually the best way to describe the Kinetics Internet Fund. "Truthfully, if we changed the name, we'd probably get more money," says cofounder and portfolio manager Peter Doyle, jacket slung over a chair in a conference room at his midtown Manhattan office.

Doyle's quip has two meanings: His Internet Fund was once the darling of Wall Street–one of the top-performing mutual funds of 1998 and 1999. But it crashed and burned a lot of investors, falling from $1.4 billion in assets in early 2000 to as low as $188 million by 2002.

But Doyle is not just referring to his fund's lingering tech-bubble taint–he's also speaking about his alternative approach.

Despite its seemingly self-evident name and legacy as the first ever Internet-focused mutual fund, there aren't many websites left in Doyle's 56-company portfolio today. Instead Doyle is proving that in the current bubbly environment for stocks of social networks and mobile apps, the best way to make money from the Net is old-fashioned: value stocks with long product life cycles, deep content libraries, ample cash flow–and ideally a billionaire behind the wheel.

Kinetics Internet has a mere $180 million in assets and is one of eight mutual funds, including the much larger Paradigm Fund, run by $9.7 billion Horizon Kinetics. In 2013 it ranked among the top-performing equity mutual funds, logging a 44% gain. Since its inception in 1996 the fund's 16% average annual return has more than doubled that of the S&P 500. Its 1.8% expense ratio is steep, but that has more to do with its size than costs. Turnover at the no-load fund is a mere 8%.

Kinetics Internet doesn't own any Facebook stock because Doyle, 51, says he doesn't feel comfortable investing in a site so exposed to the whims of popular opinion–let alone one that is spending $19 billion on WhatsApp, a messaging service with only $20 million in revenues.

"Maybe WhatsApp is a great investment," he says. "But I've got my doubts, and certainly handing over $15 billion in stock tells you what they think about their company. They're not interested in buying back their shares; they're giving them away."