10 Questions With Growth Guy Jim Oelschlager
He doesn't like to name names, and rest assured that he's keeping trading to a minimum.
By Ian McDonald
Senior Writer
Jim Oelschlager might be on the ropes, but he's still throwing punches.
His big-cap growth White Oak Growth Stock and Pin Oak Aggressive Growth funds are down a respective 52% and 65% over the past 12 months, both trailing more than 90% of their peers, according to Chicago fund-tracker Morningstar. The reason: Oelschlager is a die-hard believer in tech. Two of his firm's four funds are tech-sector funds; he stashes most of each fund's money into that mercurial sector, down 50% over the past year if we use the tech-heavy Nasdaq Composite as a yardstick.
That techy streak might have led to excruciating losses over the past year, but it's paid off, too. The White Oak fund has beaten its average peer in six of the past eight years, and even after the past year's free-fall its 14.5% five-year annualized return tops the S&P 500 and more than 80% of its peers. The Pin Oak fund leads its average peer over the past five years, too.
And Jim has chosen a unique route to those gains. Unlike most of his peers, he doesn't flit from one hot stock to another. Instead, he rides a short roster of 25 or so stocks he wants to hold for years. An admitted optimist, Jim thinks tech stocks will start heading north again any day now, but he's not loving everything on his radar screen. Where does a bruised tech refugee invest today? Read on.
1. You folks have a pronounced tech bias and you've stuck to it through a very difficult period. Why did you keep overweighting tech and what's the case for technology today?
Oelschlager: Let me just say, I think sticking to your style is important. I think the managers who get whipsawed in the long run are the ones that change their style in midstream. We think tech is going to be the driver of huge productivity gains going forward, leading what I'd call another industrial revolution -- and we're still in the early innings. You've had slowdowns in the auto industry from time to time, but that doesn't mean it's the end of the auto industry. We're having a slowdown and inventory correction in the tech area, but it's not the end of the tech revolution.
2. From some angles tech stocks have gotten much cheaper over the past year, but some companies are just as expensive, if not more expensive, because their earnings have come down so much. Is there value in technology right now, and if so, where do you see it?
Oelschlager: I think there is value in tech. I think it is exceedingly difficult to calculate that because companies are reporting basically abysmal earnings, which we expect will be a temporary phenomenon and not a long-term phenomenon. So, I think you have to look forward and try to get a handle on where you think earnings will be in three years, and then try to decide what's an appropriate valuation. Everybody claims no visibility and everybody's writing off everything they can find because there's no more penalty for reporting lousy numbers.
3. Is there any particular area of the tech sector that jumps out to you on a valuation basis?
Oelschlager: Yes. I think that the data-storage area is one of the most attractive; I think the same of the semiconductor area, the fiber-optic area and the networking area. Those are the four areas in tech that we think look most attractive.
Any names that jump out to you as being just grossly oversold and misperceived?
Oelschlager: I hesitate to mention names for the reason that a name I love today I may hate on Monday, and by the time you get it in print, I may be selling it, and I would feel like a schmuck. Plus, some managers have gotten into trouble with that. Even not worrying about getting in trouble, I just don't think it's the right thing to do.
4. What sleeves of tech still look expensive to you?
Oelschlager: Boxmakers [PC makers], we're out of the boxmakers. We were in them for a long time, but we've been out of them for quite a while.
You don't see much growth there?
Oelschlager: Don't see the growth, don't see the profits.
You're even steering clear of Dell (Nasdaq: DELL - news) ? Their pricing power has won them a lot of fans among growth managers over the past year.
Oelschlager: As you know, we hold a relatively small number of names, so there are a lot of good companies that we don't hold. We try to hold the ones we think are best on a relative basis, so we just think there are more attractive areas than the boxmakers.
It just doesn't crack the top 25 or so?
Oelschlager: Right.
5. We typically associate growth and tech investing with heavy trading or turnover because companies rise and flop in short cycles. But you've got very low turnover relative to your peers. What's led you to a buy-and-hold style?
Oelschlager: We have very low turnover, but let me just back up and say that I think there are a lot of successful approaches. We think the buy-and-hold approach is the best one in the long run. It reduces your short-term tax problems for one. Also, I think a lot of people confuse motion with progress, and particularly when the market is down they feel they want to do something. Sometimes the best thing to do is to do nothing. If you reassess yourself, and you're in the right positions and the right areas, I think you just want to sit back and ride through the wave.
6. Obviously you have a tech bias in your funds, but there's a big world out there. Where are you finding growth outside of technology?
Oelschlager: Well, we tend to focus on the areas that we think are attractive, and we like the health care area right now. We like the financial area.
Where are you invested in the health care sector?
Oelschlager: We're basically in the large pharmaceuticals, like Eli Lilly (NYSE: LLY - news) , Pfizer (NYSE: PFE - news) and Merck (NYSE: MRK - news) . Plus, Medtronic (NYSE: MDT - news) .
And in the financial sector?
Oelschlager: In financials we own a lot of Citigroup (NYSE: C - news) and AIG (NYSE: AIG - news) . We also own some MBNA (NYSE: KRB - news) and some Morgan Stanley (NYSE: MWD - news) .
You see a longer-term growth story in those areas?
Oelschlager: Yes, we do. You know, and AIG and Citigroup -- well, I should say AIG -- has been a pretty consistent grower. Here you got me talking about individual companies. AIG has been a pretty consistent grower for a long time and the prospects of them doing well for some time in the future I think are good.
7. To come back to technology, the sector has been in a severe downturn. When do you see demand for tech products getting healthier?
Oelschlager: Well, first of all, I think the market will probably recover and rally before the economy recovers and before the tech economy recovers. It always does and frankly, I think it is likely to start any time. But be careful, I'm the eternal optimist.
People always say that a tech recovery will start when demand for chips picks up and those stocks start going north. Does that make sense to you?
Oelschlager: That does make sense to me. And we see some minor signs that the worst is over in the chip area.
8. Let's play word association, where I'll say the name of a bellwether and you'll say if you own shares and just what your outlook is on the company. Let's start with Cisco (Nasdaq: CSCO - news) .
Oelschlager: I think it is clearly going to be one of the leaders in the next decade in the technology arena.
And you do own shares, right?
Oelschlager: I do.
Microsoft (Nasdaq: MSFT - news) ?
Oelschlager: Here you've got me talking about companies again. Microsoft is a name that we're not that excited about currently.
Two that I think you do own that have had a rough stretch, obviously, are JDS Uniphase (Nasdaq: JDSU - news) and EMC (NYSE: EMC - news) , which really seem to go from can't-miss to must-miss in some senses. What do you think of these companies?
Oelschlager: EMC is the big leader in data storage, and I don't think there's any doubt that data storage is going to be an explosive growth area in the next decade and EMC is going to be a key player in that arena. With respect to fiber optics, JDS is also the big leader. I'm aware of the excess capacity at this time but I think demand will arrive to fill up the capacity, probably faster than people expect.
The last name that jumped out to me when I looked at the portfolio was Intel (Nasdaq: INTC - news) , which has lost more than half its value over the past 12 months. What are your thoughts there?
Oelschlager: Well, Intel is a large company that's going to be a key player going forward. I don't think there's any question about that.
9. The past year has been very tough. What did you learn and what would you do differently?
Oelschlager: Well, obviously if you had the benefit of perfect foresight, and you had known exactly what was going to happen, we would've made some changes. But given that we didn't have that and won't have that in the future, no, I think we would've done just what we did. We stayed in the areas we thought were attractive and we used the cash flows that we were getting to add to stocks we like that have been trounced most severely.
10. I'd assume from your comments that you're going to stick with your style, where the lion's share of the funds' assets will be in technology?
Oelschlager: Well, one other thing I think is relevant is that technology has become so broad it's almost like saying manufacturing, and a lot of these tech companies don't have much in common with other tech companies, so I think you've got to look at the different tech sectors.
I think the storage and the semi areas are the most bulletproof. And the most vulnerable -- I would say telecom and media. We're not really sure how it's all going to shake out.
Do you see a scenario where the funds get back in the black by the end of the year?
Oelschlager: I think that when the market does turn it could turn pretty explosively. Could our funds get back in the black by the end of the year? They could, but it's probably, it's certainly not for sure -- I would say it's a medium-long shot. But they can enjoy very nice gains from here. |
