Making Money In Mutuals Technology Value Gets Caught In Sell-Off
Investors Business Daily, Monday, December 15, 1997 at 14:10
But Managers Holding On, Saying Many Picks Are Oversold
What do managers do when the market is killing their favorite
stocks? In the case of Kevin Landis and Ken Kam, they start two new
funds: Technology Leaders and Medical Specialists.
Their flagship Technology Value Fund wowed the fund world with 60%
gains in '95 and '96. Those performances helped the fund attain an
IBD grade of A+ for its 36-month return of 216% the highest of all
funds.
But the fund's holdings have been decimated by two waves of tech
sell-offs, one in October and the other last week. The fund fell
more than 8% last week and is off about 24% from its '97 high reached
Aug. 5. Once up 37% for the year, Technology Value was ahead by just
5% going into Friday.
By now it's no secret that many tech companies have exposure to
Asia's woes. Troubles in South Korea hit chipgear makers especially
hard. Orders from chipmakers are seen drying up.
Among Technology Value's big holdings are chip-gear firms Cymer
and Integrated Process Equipment. As of Oct. 31, they were 4.36% and
3.27% of the fund's $234.1 million in assets.
The fear has spilled over to other areas. Many of the fund's
other tech holdings, which make up about 66% of assets, have dropped.
"A lot of fear has been priced into these stocks," said co-manager
Kevin Landis. "You never like to see share prices head south. But
I'm more comfortable than ever in these names."
Landis and Kam aren't planning to sell many stocks because of the
sell-off.
"Even if the worse-case scenario plays out, the discounting has
been so heavy that it's hard to imagine the market pricing in more
doom and gloom," Landis said Friday.
Both Cymer and Integrated Process have products that chipmakers
need to stay competitive, Landis says.
The only evasive action taken was to raise cash to about 5% of
assets and lift assets on the medical side gradually to 33% from 10%
at the start of '97.
This move had little to do with forecasting the trouble.
"We don't try to make great trading calls," Landis said. "We're
much better at bottoms-up selection."
Kam and Landis use their hands-on experiences in the medical and
tech fields - and their network of experts -to find out how well each
company's products and services are accepted in their markets. Once
they find one with good prospects, they wait for a good price.
Top holdings of the 40-stock fund on Nov. 30 were Altera at 10% of
assets, Integrated Process, Medtronic 4.6%, Technology Modeling 4.5%,
Cisco Systems 4.2%, PMC-Sierra 4.1%, Anadigics 4%, Ascend
Communications 3.8%, Texas Instruments 3.5% and Immunex.
The fund has seen minor net redemptions this month, but nothing
extreme, says spokesman Steven Witt.
Technology Value plans a year-end capital gains distribution of
$2.50 a share next week. That amounts to 8.9% of its net asset value
on Thursday.
Despite the sell-off, the managers see no reason to delay their
new funds.
"We're starting these funds in the midst of a sale," Landis
explained. "It's almost too good to be true."
Medical Specialists is the more aggressive of the two. It will
invest in companies poorly understood by Wall Street. Kam aims to
use his expertise to add value with stock picking.
Among such choices found in Technology Value is Cardiothoracic
Systems. The money-losing company is pioneering ways to do coronary
bypass surgery without cutting the sternum and stopping the heart.
Over 7,000 procedures have been done and Kam is hearing that more
than half of such surgeries are expected to be done this way by 2000.
Kam also likes the other play in this area, Heartport.
He sees the new fund as a long-term investment, requiring at least
five years.
Landis' Technology Leaders will focus on the strongest tech
companies he tracks. Some also will be found in Technology Value
Fund. |
