$8.1B Brandywine Fund buys ASND in Q198. thestreet.com article
[Nice support base formed w/The Capital Group, Brandywine and ??]
Fund Watch Features: Brandywine Getting Back Into Tech
thestreet.com
By Avi Stieglitz
Staff Reporter
4/7/98 9:25 PM ET
Foster Friess has the tech bug back.
The new top-10 list of the Brandywine Fund, en route to
shareholders now, sports seven tech stocks -- including
telecom -- compared with zero at the end of January,
when retailers dominated the list.
In an attention-grabbing and shareholder-shocking move
late last year, Friess sold off most of his tech positions
and shifted more than 70% of his portfolio's assets into
cash due to worries over Asia.
While cash was still at a hefty 44% at the end of the first
quarter, Friess did increase his tech position in flagship
Brandywine Fund to a market overweight of 24%.
The position seems to reflect a recent change in
sentiment. In early February, on a conference call with
shareholders and financial advisers, Friess associate
William D'Alonzo said: "We don't think these Asian
ripples have been factored in and we think that will
probably start, as you may see disappointing prereleases
of earnings in the first quarter and maybe early into the
second quarter."
In mid-March, D'Alonzo maintained in an interview that
Brandywine portfolio managers were still avoiding tech.
Instead, they were concentrating the portfolio in retailers
that would benefit from cheaper imported goods and the
strong domestic economy.
Now, for Friess and his colleagues, Asia is apparently no
longer as big a fear. The most recent top-10 holdings
include networkers such as 3Com (COMS:Nasdaq), Bay
Networks (BAY:NYSE) and Ascend Communication
(ASND:Nasdaq) -- three stocks that would be affected by
continued weakness in the Far East. When 3Com issued
a warning in early December, the company pointed to flat
growth in Asia as a key reason for its not being able to
meet its numbers.
The other tech stocks in the top-10, which represents
20% of the fund, include: WorldCom (WCOM:Nasdaq),
Computer Sciences (CSC:NYSE), Nokia
(NOK.A:NYSE) and Apple Computer (APPL:Nasdaq).
If the managers were waiting for a cheaper point to
re-enter, it's tough to tell if one arrived. 3Com and Bay, for
example, have traded in a range since the new year; by
quarter's end, both were actually up for the year. As for
Ascend, it moved up substantially over the quarter, more
than 50%, as Wall Street decided its prospects had
brightened. But the fund managers had expressed
concern over P/Es, and they were not available for
comment Tuesday on any valuation determination.
Tech's absence for the majority of the first quarter shows
in the fund's performance. With tech leading the market
higher, the $8.1 billion Brandywine Fund's 2.9% return for
the first three months of the year paled compared with the
12.8% average return for funds in its growth category and
13.9% for the S&P 500 index, according to Lipper
Analytical Services. Sister fund Brandywine Blue, which
has $611 million in assets, was up 3.5% during that same
period. Year-to-date through Monday, Brandywine is up
3%, Brandywine Blue is up 3.8% and the S&P 500 is up
about 16%.
Before the Asian collapse began in earnest last fall,
Brandywine Fund had a 35% weighting in tech stocks.
Among the stocks that Friess took his profits in late last
year as they fell were some of the large-cap tech
standouts this quarter such as Dell (DELL:Nasdaq) and
EMC (EMC:NYSE).
In addition to tech, Friess cut his weighting in energy
services at the end of 1997, from 7.6% at the end of
September to 2.1% at year-end. It now doesn't even make
the top-10 industry groups in the fund. (The smallest,
computer systems, makes up a mere 1.6% of the
portfolio.) The largest group, financial and business
services at 10.7%, has increased from 6.5% at year-end.
Friess' heavy trading has already taken its toll. In the first
six months of the fiscal year that ends Sept. 30, 1998,
Brandywine has amassed $2 in capital gains with $1.93 in
long-term gains. Last year's hefty capital gains
distribution, made on Oct. 27, 1997, was $7.02 with $4.36
in long-term gains. Those high distributions, along with
measly returns landed the Brandywine Fund and
Brandywine Blue, on our Capital Gains Hall of Shame list
last year.
-- Avi Stieglitz
Staff reporter Alison Pederson contributed to the
Brandywine report.
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