Fund Watch Features: Already Bruised, Tech
Funds May Suffer Even More From Oracle's Woes
By Avi Stieglitz
Staff Reporter
12/9/97 7:52 PM ET
It's gone from bad to worse for tech fund investors.
Just when the sector seemed to be bouncing back from fears about Asia
and the $1,000 PC over the past couple of days, the bottom dropped out.
In an unusually frank conference call last night, database software giant
Oracle (ORCL:Nasdaq) said that on top of the severe earnings
disappointment reported for its second quarter ended Nov. 30, sagging
sales in Asia would mean more difficulties in the months ahead.
In the competitive mutual fund world, particularly the high-octane tech
sector, managers have little patience for stocks that look like they're going
nowhere soon. So for already-battered science & technology funds -- the
group fell 14.3% versus a gain of 0.5% for S&P 500 index funds from Oct.
9 through last Thursday, according to Lipper Analytical Services --
Oracle's bleak outlook news couldn't be worse.
Oracle, a profit machine whose stock rose in value from around 1/4
split-adjusted shortly after its 1986 IPO to an all-time high of 42 1/8 in
August, dropped nearly 30%, or 9 7/16, to 22 15/16 Tuesday on record
volume. The tech-stuffed Nasdaq slipped nearly 2% as investors rushed to
dump their tech holdings. (Click here for a TSC story on the Oracle/tech
debacle.)
Merrill Lynch Technology, which was the worst-performing tech-sector
fund during the past two months, with a loss of 30.5%, probably got
slammed again today. The $750 million fund had 1.1 million shares of
Oracle as of June 30, according to data tracker Technimetrics. That
would mean the fund lost about 1.3% of its net asset value today because
of Oracle alone, if it still holds that position. Merrill declined to comment.
Others likely hit hard: Fidelity Select Software & Computer Services had
676,000 shares of Oracle as of Aug. 31, according to Technimetrics
(Fidelity declined to comment on whether the fund still held that position,
though it did say that the stock was the fund's second-largest holding as of
Sept. 30.); T. Rowe Price Science & Technology had a 3.1% position in
Oracle as of Sept. 30, a spokesman said, though he wouldn't say whether
it was still in the portfolio; and Alliance Technology had 1.8 million
shares of the stock as of May 31, the most recent data available from
Technimetrics.
Fred Plautz, portfolio manager of AAL Capital Growth, was on the front
lines selling today. After cutting his Oracle position in half this summer,
he proceeded to dump the remaining portion of his 1% position Tuesday
at an average price of slightly over 23.
"The company said that they weren't going to bounce back in a quarter or
two," Plautz said.
He is worried about the Asian contagion spreading in tech land, but so far
he isn't selling any of his other sector stock holdings. "You can't blame the
size of the miss for Oracle on Southeast Asia alone," he says.
David Alger of Alger Management, which has $8 billion in assets under
management, says that by "pure dumb luck" he unloaded the remnants of
his position in Oracle last week at around 32. The majority was sold this
summer at around 37 as licensing revenue turned weaker. He says he
hadn't been expecting anything dire from Oracle but rather was looking to
lower his overall tech exposure due to fear over Asia. Although he has
lowered his weighting in tech from as high as 40% to the low 20% range,
he is still somewhat optimistic that the high-growth sector will show some
mettle from here on.
"I think it's a blip," says Alger. "You're going to have some impact from
Asia, but we're in a period where the market is looking around for
scapegoats."
John Force of PBHG Technology & Communications also thinks that the
problems with Oracle are company-specific. "Oracle blamed its earnings
problems on Southeast Asia; I don't believe it," he says. "I think there are
more serious, deep-rooted problems and they are using smoke and
mirrors."
While Oracle may have its own problems, other managers are sufficiently
spooked by Asia to be turning bearish on tech. Andrew Kaplan, portfolio
manager of Fidelity Select Electronics, expressed those fears to
TheStreet.com last week. (Click here for that story.)
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