Franklin Biotech Fund's Assets Surge, Fund Closes
NEW YORK -- Two weeks after Franklin Resources Inc. (BEN) said it would ratchet up the limit on assets for its biotechnology fund, the company closed the superstar fund to new investors.
It took only 10 days from the Jan. 21 announcement for the then-$200 million fund to surge past its new $500 million threshold.
Assets for the Franklin Biotechnology Discovery Fund now stand above $650 million, and have grown about eight-fold since November 1, when the fund's asset size was capped at $150 million.
Last month, the San Mateo, Calif., fund shop said it was increasing the limit because the biotechnology industry's assets overall were rising. Franklin closed the fund on Monday, although the company is processing applications already in the works.
The Franklin biotech fund is one of the few pure plays on the fund market. Last year, its 97.91% gain ranked it second of 71 health and biotechnology funds tracked by Lipper Inc.
The fund is up 43% so far this year compared with an average gain of 19.15% for the group.
Much of that performance is due to Portfolio Manager Kurt von Emster's fondness for small-cap names, which until the middle of last year had dragged the fund down. The real burst in performance came in the last three months of the year, with a 61.33% rise.
"The value is in those small companies," said von Emster, 33 years old, who has run the fund since its September 1997 launch. He's also manager of the $105 million Franklin Global Health Care Fund.
"If we limit the size of the fund, we can still be flexible, invest in those companies and let them grow wildly," von Emster said.
A third of the 56-stock fund still invests in giant-cap biotech names, including Amgen Inc. (AMGN), Biogen Inc. (BGEN) and Genentech Inc. (DNA).
But those stocks that gave the fund its boost include Chemdex Corp. (CMDX), a Palo Alto, Calif., company offering an online catalog of life-science research equipment and materials. Von Emster bought the stock for an average 18 after taking an initial position in the IPO. The stock zoomed to 143 in December, closing trading Thursday at 105 3/8.
Gene Logic Inc. (GLGC) stock shot through the roof in just a month: von Emster started buying at 32 in January and it closed Thursday at 83 1/8. The Gaithersburg, Md., company is replacing hardcopy databases by posting gene discovery research on the Internet and blasting the news to researchers.
Bought For A Bargain Price
Von Emster picked up Fremont, Calif.'s, Abgenix Inc. (ABGX) for a bargain 14 early last year, and added to the position around Thanksgiving at 42. The company, which develops antibody therapeutics, ended Thursday at 217 1/16.
Two other current top-10 holdings jumped for the fund last year: IDEC Pharmaceuticals Corp. (IDPH), up 318%, and Medimmune Inc. (MEDI), up 234%.
The recent run in biotechnology stocks, which has outpaced this year's rally in Internet stocks, will have more stamina, von Emster said, because "unlike the (Internet companies) that are still relatively unprofitable, we've been through the 10-year boom and bust cycle."
While the biotech industry is still in the emerging growth phase, it is "past the real high-risk portion," he said. "The second wave of these companies is finally turning profitable."
Despite his successes, von Emster isn't buying at any price. Consider a long-standing holding: Curagen Corp. (CRGN), a New Haven, Conn., gene discovery and information company that does about a third of its business on the Internet.
Von Emster bought the stock at 11.5 in March 1998, but sold off his stake completely late last year thinking 50 was too pricey. After meeting with company executives, last month he ploughed another $6 million into the company's convertible securities when the stock was trading at 100. It closed at 163 9/16 Thursday, a 23.9% jump in one day.
"If you believe the stock is expensive, it's a better way to play," von Emster said of the convertibles. "We just wanted to be a little cautious." |
