CREE mention.....Managers of Two New Funds Faced
Baptism by Fire
By Ian McDonald
Senior Writer
4/5/00 7:37 PM ET
Imagine being handed a big pot of cash to invest in the
midst of this week's market gyrations. Two portfolio
managers with new funds are living that dream -- or is it
a nightmare?
Fund marketers usually launch new funds when stock
prices and investor confidence are sailing swiftly north,
but sometimes -- through happenstance -- a fund will roll
out right into the teeth of a selloff. That's what happened
to the AIM Emerging Growth fund, which opened for
business last Friday, and Value Trend's Wireless
fund, rolled out on Monday.
"It's hard to pull the trigger when the Nasdaq is down
almost 600 points, but I was really excited in a twisted
kind of way," admits Jay Rushin, a senior small-cap
growth analyst who works on the small- and
mid-cap-focused AIM Emerging Growth fund.
The fear, of course, is that you're building a portfolio with
tanking shares that could keep sinking. And the
excitement comes from the chance that if you buy
shares deep enough into a selloff, you can reap fat
profits down the road.
The proposition isn't new. If Rushin, who's taped a sign
to his computer monitor that says, "No Emotion," wants
advice from someone who's been there, he can just walk
down the hall.
In 1987 Ed Larson, AIM's chief equity officer, managed a
small-cap growth fund that launched on Oct. 26,1987 --
a week after Black Monday, when the Dow lost more
than 20%.
"It was nerve-wracking," Larson recalls solemnly. The
fund has since changed hands and is now John
Hancock Small Cap Growth fund, run by Bernice Behar.
Since the end of that tumultuous October, Larson's old
fund is up a cumulative 1,066% through Tuesday,
compared with 615% for the average stock fund,
according to Lipper. While much of that performance is
tied to years of mostly solid stock-picking, the fund's
fortuitous start date didn't hurt.
That's the kind of edge Rushin and his colleagues are
trying to build. So, what are they doing?
To begin with, they're in no hurry. Simply going on a
scrap-heap buying spree could be a bad move since
many speculative dot-coms running out of cash have
fallen hardest and might deserve to keep falling, Rushin
says.
"Maybe some of these stocks didn't deserve to be at
200, but do they deserve to be at 100? Some of these
might fall to 20," he says.
On Tuesday, the fund had around $40 million, and most
of that was still in cash. As many of the stocks on the
buy-list dropped 50% on Monday and Tuesday, the
team focused on stocks in which they had the most
conviction, he says. Looking over a list of the fund's
trades, Rushin says the primary focus has been on
higher quality small- and mid-cap stocks in the wireless,
computer hardware and networking equipment
subsectors. (He refrained from naming names, since
many trades weren't complete.)
From Friday through Tuesday's close, the fund was
down just 3.3%, according to Rushin. That's less than
half the losses for the Russell 2500 Growth index, the
fund's small-cap-growth benchmark.
Another new fund that might have been born at the right
time is Value Trend Wireless, which didn't start putting
its $1 million seed money to work until midday Tuesday,
says co-manager Jeff Provence.
"We waited until yesterday around noon and just started
going like crazy," he said Wednesday.
On Tuesday, the fund established 25 positions and
plans to add 10 more, Provence says. Among the
nascent fund's top-10 holdings are semiconductor firms
Cree (CREE:Nasdaq - news - boards) (which was
spotlighted in a recent TSC story) and TriQuint
Semiconductor (TQNT:Nasdaq - news - boards) and
wireless dynamo Qualcomm (QCOM:Nasdaq - news -
boards). Each is trading more than 30% below its
52-week high. The two semiconductor firms had good
days on Wednesday; Cree rose 11%, while TriQuint
gained 4%.
After Monday and Tuesday, the wireless fund was up
8.9%, Provence says, compared with a loss of 9.3% for
the Nasdaq Composite.
Both Provence and AIM's Rushin say they take solace
in the market's recent bloodbath, knowing that they got
into their positions at a lower cost than many of their
longer-established competitors. Though the market
could resume going south, they say new funds typically
have positive cash flows, giving them the chance to keep
buying at lower prices while cash-short funds must often
liquidate positions to meet redemptions.
Flows into AIM's fledgling fund have been steady, and
Wireless will be added to online fund supermarkets
Charles Schwab and Fidelity over the next two weeks.
Industry observers say these two funds' cash flows
should give them plenty of flexibility unless their sectors
tank. In that case, the cash spigot could cool off, leaving
them with little flexibility.
But even if a fund isn't strapped for cash, this is a trying
week for a new fund manager. Bob Grandhi took the
reins of Monument Internet last week, essentially being
handed a hand-grenade. The fund, which topped all
Internet funds last year with a 273% return, isn't in
outflows, but has lost more than 24% as Internet stocks
have been hammered over the past week through
Tuesday.
"The timing has been stressful," Grandhi admits, adding
that he too likes higher-quality stocks in today's
environment. |
