Dreyfus Technologys Top Picks
by Steve Smith 12/3/99
In the 1967 movie classic The Graduate Dustin Hoffman was given one word of advice on how to realize incredible riches. Back then the word was ?plastics.?
Mark Herskovitz, who co-manages the Dreyfus Technology Growth Fund (NASDAQ:DTGRX - news) with Richard Williams, was similarly succinct when talking about what has led to his fund?s stellar performance, which is up over 114% year-to-date. Herskovitz updated the movie by saying, ?I would have told Benjamin Braddock [Dustin Hoffman?s character] ??optics?.?
Herskovitz has put his money where his mouth is: Two of his largest holdings, together comprising nearly 7% of the portfolio, are JDS Uniphase (NASDAQ:JDSU - news) and SDL Inc. (NASDAQ:SDLI - news) , two of the leaders in the exploding fiber optics, semiconductor laser and dense wavelength multiplexing technology.
And lest you think that he just recently jumped on this momentum bandwagon, Herskovitz was proud to point out that his fund has owned both stocks well over a year. His cost basis in JDS Uniphase on a split-adjusted basis is $19 per share; it currently trades at $267. SDL was purchased for a mere $6 per share, and recently hit $180.
These two eye-popping performing stocks epitomize the managers? methodology and approach to investing. Herskovitz says: ?Our fund is very fundamentally driven. We see such a high level of technological innovation happening at such an accelerated rate. It is driving the economy at an unprecedented rate and scale. That means we believe there is lots of opportunity. That means we can be less aggressive than other funds? and still put up great returns.
Herskovitz makes his investment strategy sound very simple. He says he simply tries to divine what will be the main drivers of the broad economy, identify what sectors will benefit the most and then choose the leading companies within those sectors.
And wala, he racked up a 98.4% return during 1998, the first full year as a publicly traded fund and is about to post triple digit gains in his sophomore year running the fund. Today it has about $560 million in assets under management.
Asked how he plans to maintain the high bar he and his co-manager have set for themselves Herskovitz addresses the issue in a consistently uncomplicated manner. While unable to speak about specific new companies that he might add to the portfolio, he notes ?If the long term themes remain intact we will maintain our core positions.?
The portfolio profile currently reflects Herskovitz?s belief that ?the shift in the communication of information and data using broadband and internet is the most powerful driver of the economy.?
So what else does he own aside from the two previously mentioned stocks?
Taiwan Semiconductor (NYSE:TSM - news) and KLA-Tencor (NASDAQ:KLAC - news) give him some exposure to the semiconductor industry.
MCI WorldCom (NASDAQ:WCOM - news) and Qwest Communications (NASDAQ:QWST - news) are just two of his investments in the communications field.
Nokia (NYSE:NOK - news) and Newbridge Networks (NYSE:NN - news) round out the wireless portion of the portfolio.
Two areas that the fund is underweighted in are the computer services and hardware sectors. Herskovitz feels that these two sectors are becoming commoditized, leaving little room for accelerated earnings growth.
Still, Dell Computers (NASDAQ:DELL - news) remains one of his core holdings due to what he believes is the leading PC seller?s ?superior execution of a transforming business model.?
In a sector that he is less than enamored with, Lexmark International (NYSE:LXK - news) , a leading seller of computer printers and ink cartridges is another of the fund?s core holdings. Why is Lexmark his favorite play in the low-tech equipment market?
?As the price of PC?s drop below $1,000 people are going to look for less expensive printers,? Herskovitz predicts. ?Lexmark is the leader in the low cost, especially sub $100, market.? But the biggest attraction to the company are the higher margins generated from sales of ink cartridges, which cost consumers $20 a pop.
But the fund?s long-term strategy rests on Herskovitz?s and Williams? belief that technological advances are presenting them great investment opportunities. The future of the fund?s performance will be based upon their ability to identify those opportunities. |
