Don't judge a book by its cover

The Royal Bank calls it a "diversified and disciplined approach to investing in the new economy." But investors who are tired of the "mutualfundspeak" and have rightfully learned to tune out at the first sign of marketing hype might miss a solid investment opportunity presented by the new Royal e-commerce fund.

The e-something-or-other funds have started to pop up like mushrooms over the past couple of years, and some of them have taken investors for a roller coaster ride -- up to tremendous heights and back down crashing in the sand.

This Royal e-commerce fund, managed by David Cooke, a young man but a veteran to Internet investing, is going to attempt to find the silver lining between the explosive growth opportunities in the Internet sector and the relative safety and diversification that established, large-cap companies can offer. David Cooke, newest member of the Royal Bank Investment Management team and co-manager of the Royal Life Science & Technology fund, arrived armed with the experience of taking part in the managing of the successful Altamira Science & Technology and Altamira e-commerce funds.

There is nothing about this new fund that is eye-popping or deeply complicated, except that it has adopted a new paradigm for e-commerce investing. The fund is not about investing in the Amazon.com and wannabes that are making the most noise on the Internet front. It is more about investing in companies that are using the Internet to become better companies or to help other companies do the same.

"All companies in all industries around the world are affected," David Cooke says. "Every company can benefit from the Internet." The Internet has emerged as a tool for improving business productivity, cutting costs, enabling companies to pool their resources and increase their buying power, keep better contact with clients and suppliers, and more.

Examples abound, and companies are rushing to duplicate the success enjoyed by Dell Computer Corporation, General Electric, Ford Motor Company, and many more. "Dell changed the face of their industry by turning the business model upside down," David says. Before, companies would sell computers off the inventory, through a distribution system that left them on the tail end of the receivables and constantly shrunk their margins. Michael Dell took the customer's money, built to order, shipped within a week, and held on to the cash until it was time to pay the suppliers.

Oracle Corp. had taken initiatives to reorganize their internal processes and beef up their Intranets in order to save money. To their surprise, it turned out that they realized an extra $1 billion savings from these e-business initiatives. That is not small change, even for one of the richest companies in the world. Another example is the auto companies. Ford, General Motors and Chrysler have said that by using the Web to allow bidding on auto part production, the companies would realize 20 per cent savings.

So, David and the rest of the Royal Bank US and global equity teams will be pooling their strengths together to find the companies that are "best in their class" and are using the Internet to its full potential. This involves picking primarily among three key sectors: Infrastructure (the networking, storage and wireless companies), Internet business (B2B, supply-chain management, e-commerce platforms and content providers) and e-enabled companies ("Old Economy" companies and established technology players embracing the Web).

We got to find out some of the top picks that David and his team like for the portfolio:

• Cisco and Nortel Networks because they are market leaders in the networking area
• Veritas as the online storage leader
• Nokia for wireless communications
• I2 in supply-chain management
• Ariba for e-commerce platforms
• Yahoo! as market leader in content
• Dell, General Electric and Ford as e-enabled companies

The presence of companies like Ford, Dell and GE in the portfolio should reassure investors that the Royal e-commerce fund is not simply going out on a limb with risky Internet ideas. Indeed, since the manager looks for market leaders in each sector, most of the holdings will be U.S. companies to start, with but the fund has a global mandate. As Internet investing picks up in Europe, as it is sure to do, investors can expect to see further diversification and a little bit of a continental flavour.

Levi Folk, Richard Webb and Peter Diplaros are Investment.com mutual fund specialists and editors of the Fund Counsel newsletter. They can be reached by e-mail at peterd@hqinvestment.com.