Fund manager bullish on
software
Also favors semiconductors, wireless data,
telecom
By Kristen Gerencher, CBS
MarketWatch
Last Update: 6:27 PM ET Mar 1, 2000
Personal Finance
News
Mutual Fund Center
NEW YORK (CBS.MW) -- Across the globe, nations'
gross domestic products are rising, thanks in large part
to advances in technology and communications
infrastructure.
That's the view as Craig Ellis sees it,
and it's one that's paving the way for
lucrative portfolios. Ellis manages the
Orbitex Info-Tech & Communications
Fund (OITAX: news, msgs), which
was up 117 percent in 1999. The fund
now has 20 percent invested in
semiconductors. Ellis said he tries to
keep the fund to 50 companies, and
assets under management from all
share classes total about $400 million.
The fund is interested in companies
that reflect major international shifts,
such as the move toward the
large-scale use of cell phones, as well
as the firms that will benefit from them, he said. "In the
last seven or eight years, we've laid $100 billion worth
of fiber optic cable around the world,"said Ellis.
"You've put another $200 billion worth of network
electronics on top of it."
As such, demand for electronics will rise and the rest of
the world will become increasingly competitive with
the U.S., he said. "People are going to get the chance to
talk to each other for the first time in China. Don't think
that's not going to make a difference to those
economies."
Software and strategy
Investment strategy emerges from thinking about themes
and how technology is evolving, said Ellis. And for him
the theme of the year is software, as evidenced by the
fund's top holdings. They include Ciena (CIEN: news,
msgs), Oracle (ORCL: news, msgs), Tibco (TIBX:
news, msgs), United GlobalCom (UCOMA: news,
msgs), MRV Communications (MRVC: news, msgs), ST
Microelectronics (STM: news, msgs), Global Crossing
(GLBX: news, msgs), Cisco Systems (CSCO: news,
msgs), AT&T (T: news, msgs), Cabletron (CS: news,
msgs), Sun Microsystems (SUNW: news, msgs), and
3Com (COMS: news, msgs), a stock he is considering
increasing on the strength of the Palm spinoff. See
related story. Other large positions the fund holds
include Intel (INTC: news, msgs) and Xilinx (XLNX:
news, msgs), he said.
Ellis reports that since last quarter, he's moved out of
online retailing names and ramped up holdings in
software, which he believes is driving
business-to-business e-commerce. He sold off Dell
(DELL: news, msgs) and Compaq (CPQ: news, msgs) in
the consumer electronics space and added weight in
semiconductor and telecom positions. He noted the
particular success of new addition MRV
Communications, but said AT&T has performed the
worst.
"Some of these (software firms) will continue to rise
like Juniper did and be the big, big players," said Ellis.
"All boats in software are rising at the moment. That
won't be the case long term."
Ellis said he has to stay vigilant and question whether
his original investment thesis still holds. Is the company
losing ground to a competitor? "You've got to keep
shifting and staying with your winners as much as
possible," he said, noting that he has his "eyes peeled"
on how the Linux model evolves.
Another trend is that businesses are examining their
systems and asking "what kind of software can they
bring on top of it that will make all their other software
work and yet allow them to communicate in the same
standard with primary customers like GE," said Ellis.
"That's what BEA (BEAS: news, msgs) and Active
(ASWX: news, msgs) and WebMethods (WEBM: news,
msgs) and Tibco are pretty much all about."
Wild for wireless
"You've got to try to own anything you
can in terms of wireless data if you can
find it," he said. "Anything that can
reduce the power consumption of a
handheld so the battery life can extend
to be a full Web browser type of
device, that's really important."
Ellis expects Nokia (NOK: news,
msgs) to continue its lead in the
handheld device market. He also
mentioned U.K. device maker Psion
(PSIOF: news, msgs) for its
development of pre-IPO wireless
manufacturer Symbian, which he
expects to be a "big, big deal" when it
goes public. Texas Instruments' (TXN:
news, msgs) recent announcement
about technological advances in
extending the battery life of its digital
signal processing (DSP) chip also
merits a look, he said.
Paging companies have also expanded their reach, such
as data paging firms RIM (RIMM: news, msgs) and
BellSouth (BLS: news, msgs), he said, adding that "the
companies that have the spectrum by which you can
deliver that information are catching a lot of attention."
As for Internet pure plays, Ellis grew cautious. "We've
been heavily involved in the Internet but we've also
preached ... a lot about how you've got to be prepared to
redefine what the Internet is and what it's going to be,"
he said. "You've seen the Yahoos, the Lycos, the
Amazons have really done pretty poorly since January
3rd."
The fund currently holds few e-tailers. "They weren't
about making money," he said. "The products they sold
were usually loss leaders. It's about selling lists to
marketers."
Ellis emphasized that while he's not dismissing the
companies, he's concerned about what he calls business
complexities and profitability.
Riding the bumps
Overall, Ellis advised investors to discount bearish
outlooks that suggest rising interest rates and oil prices
will bring about a slowdown that results in sell-offs and
volatility.
"Don't believe it," he said. "This year is about a rising
global economy that's being enabled by new
technologies and this is a year to stay fully invested."
Even so, it won't be 100 percent smooth sailing, he said.
"The ride's going to be rocky, but I think it's going to be
worth it."
Kristen Gerencher is a personal finance reporter for
CBS.MarketWatch.com.
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