Ryan Jacob is no stranger to market cycles. Formerly the manager of Kinetics Internet (WWWFX), where he produced eye-popping results during a two-year stint, Jacob struck out on his own in 1999 to launch Jacob Internet (JAMFX). Jacob says that over the course of his career, “we’ve been through some of the best and some of the worst market conditions.”

And conditions were tough last year for technology funds even though earnings in the technology space held up much better than anyone expected. Jacob Internet was at a particular disadvantage given its focus on Internet-related companies and lost more than half its value in 2008, down 51.2 percent for the year.

But 2009 has been much kinder to the fund, and Jacob’s strategy has been a major component in that recovery.

“What makes us a bit unique versus our peers is that we have a value component to our portfolio,” says Jacob. “We went through a period where a lot of technology stocks were orphaned, trading at very low price-to-sales and maybe modest premiums to cash on their balance sheets, creating deep value. We tried to balance the portfolio between growth and value to take advantage of those opportunities; a lot of our peers focused on earnings momentum or just purely above average growth trends. They’re missing a part of the market that we think is different but provides attractive opportunities.”

The fund is up almost 40 percent this year, with unexpected names generating much of that gain.

As an Internet fund, much of its portfolio is made of the usual suspects. Apple (NSDQ: APPL), Google (NSDQ: GOOG) and Yahoo (NSDQ: YHOO) are among its top five holdings. Baidu (NSDQ: BIDU), the hot Chinese equivalent to Google, appears a little further down in the lineup. The gains on those holdings are impressive, ranging from 39 percent on the Yahoo position to 173 percent on Baidu. But the real money’s being made on the smaller and out of favor names.

Take Openwave Systems (NSDQ: OPWV) as an example. A developer of software applications and infrastructure for mobile and broadband Internet operators, the company effected a two-for-one split mere months after its initial public offering in 1999, but share prices still remained over $300. After the dot com bubble deflated, share prices hovered around $10 for the bulk of the last decade.

But Jacob saw value there, and so far this year share prices have skyrocketed 353 percent as the company has cut costs, streamlined operations and formed partnerships with mobile operators to help them cope with the tidal wave of data consumed by now-ubiquitous smart phones.

Why is now an attractive time to invest in technology companies?

“Tech companies have been operating very prudently since the late 1990’s, hoarding cash and being much more conservative in their expenditures,” says Jacob. “That’s left them relatively safe in terms of their capital structure, and they still have decent growth potential. I think that’s part of the reason they were able to weather the end of last year better than people had thought. And this year they went through even more cost cutting and reduced capital expenditures; they can have flat or maybe even declining revenues and still show earnings growth.”

Although some tech companies saw declining profits in the second quarter–Microsoft suffered a 29 percent cut in profits as PC sales slowed–the trend Jacob pointed out has largely held true. For example, Amazon.com (NSDQ: AMZN) saw net sales rise 10 percent and free cash flow exceed $1.5 billion in the second quarter, though net income did fall on unfavorable exchange rate rates.

For the most part, these weaker-than-expected earnings were the result of one-off events. Microsoft’s numbers were down because customers are likely putting off purchases in expectation of the launch of Windows 7 later this year, while a strong dollar won’t likely weigh on Amazon for much longer.

These events are actually an opportunity for investors.

Technology and the Internet pervade almost every aspect of daily life, making technology a profitable, long-term theme for investors. An earnings stumble simply sets up the opportunity for investors to enter on the cheap.

But internet stocks can be volatile. Jacob remains sanguine about their long-term prospects, firmly believing “the 1990s were an anomaly.” Prospective investors who heed his advice should enjoy steady profits from the sector.