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Dow Jones Newswires -- July 14, 1999
SMARTMONEY.COM: Too Hot To Touch
By Danny Hakim
Smartmoney.com
NEW YORK (Dow Jones)--Maybe the Metropolitan Opera can expect some more
donations coming its way. That's because one of its biggest individual boosters,
philanthropist Alberto Vilar, has made several hundred million dollars for his investment
firm by buying up over 16% of a recent hot Internet initial public offering, Ariba (ARBA).
Vilar's company, Amerindo Investment Advisors, now has a stake worth over $800
million in the company. That might help Vilar, a 58-year-old Cuban emigre and opera
buff, pay for the two Met operas he plans to underwrite this year, "Doctor Faust" and
"Fidelio."
And investors who are frustrated that they can't get access to IPOs at their offering price
should take note: Vilar does most of his buying in the aftermarket, when anyone can get
in on the action. Since its June 23 offering at $23 a share, Ariba has soared as high as
$128 and closed Tuesday at $114.56. Vilar, who manages Amerindo Technology
(ATCHX), the best-performing retail mutual fund in the first half, bought most of his
position in the $60-a-share range. He likes the Silicon Valley company's position in a hot
sector, business-to-business e-commerce. Ariba designs software systems that allow
businesses to communicate with each other and with themselves. It's the latter that Vilar
seems most positive about, specifically Ariba's technology that allows large companies
to keep track of their different businesses and inventories.
"There's no question Ariba has moved because they're early, nobody else is there and
their market is explosive,' says Vilar. "The company just came out and [now] has a $4
billion market cap. It's a ten-bagger, and they are in the first or second inning."
The size of the Ariba position is not unusual for Amerindo, which manages about $3.5
billion in private accounts, as well as the $171 million Amerindo Technology. (Ariba is
now the fund's second-largest position.) Vilar and his partner, Amerindo Executive Vice
President Gary Tanaka, practice a high-stakes brand of "momentum" investing, in which
they take large stakes in a few companies for the first three to five years of their public
life.
In the past few months, Amerindo has also purchased three other recent IPOs, including
over 16% of a small e-commerce software company called Persistence Software
(PRSW) and stakes between 1% and 5% in the pioneering online toy seller eToys
(ETYS) and Critical Path (CPTH), which outsources corporate e-mail systems. Both
companies share with Ariba the critical "first mover" advantage in their respective
sectors, says Vilar. Critical Path is now the mutual fund's third-largest holding out of just
15 stocks and eToys the sixth-largest (Persistence is held only in private accounts).
It's hard to argue with Vilar's results. This year, his fund is up 118%, following an 84.7%
gain last year. On the other hand, fund investors should be wary. Unless you're investing
in a tax-sheltered account, Amerindo Tech is a Venus flytrap for investors attracted by
the fund's stellar performance - at least until the end of October, when the fund has to
make its capital gains distribution.
After selling off a huge position in Yahoo! (YHOO) and large positions in other Net
stocks, Amerindo Tech has an enormous capital-gains distribution looming. A recent
Amerindo SEC filing put the fund's long-term gain at $6.13 a share and the fund's
short-term gain at $8.92 a share. Like all mutual funds, Amerindo Tech has to distribute
its capital gains to investors at some point before the end of its fiscal year, which in this
case falls at the end of October. Since the fund's current net asset value is $29.68 a
share, these taxable capital gains represent over half of the fund's assets.
Chris Brown, an analyst at the Financial Research Corporation, says the pending
distribution is one of the biggest he's heard of. "That's tremendous, them paying out
more than half of the fund," he says. "It's not good for shareholders and it's a black eye
for the fund industry. It might encourage some shareholders to invest in technology stocks
instead of in funds."
"The first thing I learned on Wall Street 30 years ago is that to make a decision based on
taxes is a mistake," counters Vilar. "Would I rather be out of the Internet sector? We have
these gains because we're not down 90%. We're up 120%."
Still, these gains apply to all investors, meaning a newcomer could have to pay taxes on
half of his or her investment. Vilar says he thinks some losses will trim his gains by the
end of October, because even if his fund keeps performing well, he can hold on to his
winning plays and sell off his losers. But he has a lot of ground to make up, so
non-tax-sheltered investors should sit it out.
Or, you could cherry-pick from Vilar's own hand and invest in one of his latest favorites.
But that's a risky proposition in itself. The goal of Vilar's style is to get two or three
explosive winners out of 10 picks. So which one will be the best of his current crop?
"I would submit that of these four companies, you don't know who is going to be your best
performer," says Vilar. "Any one could be a ten-bagger going forward." Or a turkey. |
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