TECH FUND Q & A
Q: I bought my first tech fund in June 2000. I figured the market had fallen enough and would correct so thought I was buying in at a good time. I was way wrong. Now what should I do? From JK on AOL.A: To say that last year was a rough one on tech funds would be an understatement. According to Lipper, Inc., the average Science and Technology Fund was down 33.92 percent in the year 2000, and the average Telecommunications Fund off 35.07 percent. Some of the hardest hit tech funds were off down more that 70 percent.
But, during the past couple of years, it was almost as though some investors had taken on a Buzz Lightyear approach to investing believing that tech stocks and fund per share prices had only one way to go, "To infinity and beyond." Now that we all know better, perhaps comments from these three tech fund portfolio managers will help you decide what to do with your tech fund investment in 2001.
John Gipson is co-portfolio manager of the Alpha Analytics Digital Future Fund, (877-257-4240). It's a new fund with an inception date in December 1999, and an impressive total return given market conditions: For the year 2000, it was down only 13.8 percent."What makes us different is that we take a dual approach to investing, " says Gipson who co-manages the fund with Mike Cohen. "Mike takes a long-term strategic view and tries to find companies that he thinks will be long-term buys. And I take a short-term tactical view using a quantitative model that tries to determine when it's a good time to get in and out of companies."
One reason Gipson gives for the fund's good performance centers around the model he uses---it looks at what the market is valuing now. "At the start of last year, the model kept us out of large-cap stocks like Microsoft, Intel and Texas Instruments. And at that time the stocks that were doing well were smaller companies with earnings growth and good price appreciation. Now the model is favoring companies with solid earnings and capital. So fundamental factors are more important."
His suggestion to the reader who entered the tech market in June 2000 is the same as what he'd say to his private account clients. "We advise something like 15 to 20 percent be in technology and the reset in something more conservative."
Around since 1984, INVESCOs Technology Fund, (800-525-8085), has served many of its investors well. Down 22.7 percent last year, over the past 10 years, from 11/30/90 through 11/30/00, its average annual total return was a plus 29 percent. William Keithler has been the fund's portfolio manager since 1999."What the markets have been saying for a while is that the economy is slowing and it's slowing pretty dramatically, says Keithler. "We saw quite of bit of that slow down reflected in technology stocks. But stocks tend to move in advance of what's happening, that is, they discount the future. Much like the recession in 1991. We saw stocks actually reflect that in 1990 and bottom before we were even sure we were in a recession."
With the Federal Reserve's lowering of interest rates on Jan. 3, Keithler thinks the worst is behind.
This growth oriented fund keeps about 100 stocks in its portfolio, most large- and mid-cap, investing its assets in the leading companies within the technology's different subsectors. "We carve it up pretty finely," he adds.
Keithler doesn't give advice to individual investors with respect to how they invest but his thoughts on the future of technology is a positive one believing that the sector still offers great opportunities. "The thing is, in technology there are always new opportunities being created because things are always changing. But it's not always the same companies that are leading the charge. In fact, it's rare that from one technology generation to another that the same companies lead in both."
He pointed out that those investing in technology last year found out that it's a sector that comes with a lot of risk and isn't for the faint of heart. "When you see the NASDAQ index drop 50 percent in eight months from peak to trough, that's pretty tough to take. So we recommend a diversified approach to investing. We think technology, for people seeking capital appreciation, is a great place to be, but it's not for everyone. It's going to depend very much on an individual's situation and their willingness and ability to take risk."
The Munder NetNet Fund, (800-468-6337), was down over 54 percent in 2000. Steven Appledorn is its senior portfolio manager."The fact that 2000 could happen is what allowed '99 and '98 to happen. Which were obviously pretty dramatic on the other side of the ledger," he says. "But the interesting thing is, the whole incredible revolution of not just information processing but communications technology that allows information to be shared instantaneously on a world wide basis is still an incredible concept with a lot of life left in it."
With about 80 percent of the portfolio, on a dollar-weighted basis, invested in profitable companies, Appledorn says what hurt the fund's performance the most last year was the shift in investor sentiment. "The momentum side of the market is a dangerous place to be and frankly scared us a little bit all along."
And there you have it, JK. The best you--or any investor-- can do is learn what you can from the pros, invest sensibly and stay in tune with your nature remembering all along that the market, and all of its sectors, is a very fickle place to play.
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