[PFE WLA] Science And Tech Fund Managers Bleeding From Latest Wounds
September 02, 1998 4:43 PM
By Richard C. ten Wolde
NEW YORK (Dow Jones)--Science and technology
funds have received third-degree burns in the summer's
roiling stock market, and managers aren't sure when the
sector will recover.
After leading most equity fund sectors through the third
week of July, tech stocks have been pummeled by the
plummeting market. Through July 20, which was the
peak of the tech-heavy Nasdaq Composite index, the
average science and tech fund was up more than 21%.
Since then, it has been nothing but murder in the sector,
fund managers say.
The average fund in the sector has lost more than
21.87% in the past six weeks, according to Lipper
Analytical Services Inc., the portfolio-performance
tracker.
"These are scary times even for an old dog like me," said
Abel Garcia, manager of the United Science and
Technology Fund and the Waddell & Reed: Science and
Tech Fund. "And I've been doing this a long time."
After the recent butchering, Garcia's funds are on the
sector's short list of gainers for the year. While each
portfolio has lost more than 22% recently, the Waddell
& Reed fund is up 4.7% this year and the United fund
has gained 7.6%.
Following Monday's stock-market dive, which brought
the Dow Jones industrials down 6.37% and the Nasdaq
down 8.56%, only 21 out of 77 tech funds still showed
gains for the year.
Garcia said he still isn't sure where stocks in the sector
are headed, describing the current climate as
"treacherous."
Garcia's team always has used a macroeconomic
outlook to help determine which companies are
positioned to outperform rivals, and that forecast "right
now looks black," he said.
Managers Disagree On Outlook
Garcia saw the storm clouds building, though, and
managed to take some cover. Since the science and tech
peak in July, he has trimmed his positions in the funds'
top-50 holdings, allowing the cash to pile up from about
4% of assets to 13%.
During Tuesday's rally, which sent the Dow index back
up 3.82% and the Nasdaq up 5.06%, Garcia remained
on the sidelines.
"It's time to be careful," he said.
Apparently, individual investors agree. During four of the
six weeks since the Nasdaq's zenith, investors have
yanked money out of technology funds, according to
AMG Data Services, an Arcata, Calif., company that
tracks money flow.
In the week ended last Wednesday, more than $148
million was pulled from the sector.
James Broadfoot, manager of the Ivy Global
Technology Fund, is more optimistic and, unlike
individual investors or Garcia, is making purchases for
the portfolio. "Two years from now, I think we'll look
back and identify this as an attractive time to buy," he
said.
Broadfoot has hunted the beleaguered sector for
companies he suspects are within industries that are
more stable and have predictable growth, such as
technology- and research-consulting firms.
Gartner Group (GART) is one such company on the
manager's shopping list. Gartner, based in Stamford,
Conn., provides analysis and research to the data tech
industry. In July, the company launched its Risk
Manager Year 2000, a tool that evaluates Y2K risks,
costs and compliance.
"The demand outlook for those companies is very solid,"
he said.
Broadfoot's gambles haven't always been on the mark,
considering his fund is down 8.82% this year, but the
portfolio has been hit by the second fist of the
combination punch - small-company stocks.
The manager does hold more-well-known tech names,
such as Microsoft Corp. (MSFT) and America Online
Inc. (AOL), but more than 50% of the fund's assets are
invested in small-caps.
Though Garcia has felt comfortable waiting on the
sideline, he said he has added to health-care and
biotechnology positions when the prices have looked
attractive. His picks include Warner-Lambert Co.
(WLA) and Pfizer Inc. (PFE).
The managers also disagree on Asia's continuing impact
on earnings and share prices in the U.S. Garcia is very
cautious, while Broadfoot said, "A lot of the near-term
earnings problems are already baked into the prices."
-By Richard C. ten Wolde; 201-938-2123;
richard.tenwolde@cor.dowjones.com
smartmoney.com
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