Dresdner RCM Global Technology Fund (DRGTX)
May 7, 1999 6:49 AM EDT
By Shannon Turner
Staff Writer
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"The trend for technology stocks for the next two to three months is caution," says Huachen Chen, co-portfolio manager of the $39 million Dresdner RCM Global Technology Fund (quote, chart, profile). Given the sector's stunning performance since October 1998, Chen sees a couple of issues now confronting tech stocks.
First, Y2K issues will keep many companies from going out and trying new technology or making new purchases.
"They want to understand what technology they have now and how it will be impacted by Y2K, so that's going to dampen demand," he says.
As for the high flying Internet sector, Chen is as enthusiastic as anyone over the long term prospects of the Internet, but in the short term, he's wary.
"We're entering the slower season in stock market terms as more people will have an outdoor focus and will not be staring at their Internet pages. Usage will slow over the spring and summer," he says.
Chen is also concerned over the enormous number of new issues coming to market and how they will have to compete for investor attention. And finally, he sees more competition with second tier players going after the leaders and that makes him even more cautious.
"Beyond that, the overall trends in technology such as its position as one of the largest and certainly the fastest growing industries will continue to create an enormous amount of value for investors," says Chen.
Chen and his partner on the fund, Walter Price, have created value for their fund holders. In 1998, the fund's total return was 61%. In 1997, total return was 27.1% and 26.4% in 1996.
Investing in technology stocks is not for the faint of heart with the Nasdaq swooning 5% one week and soaring the same percentage another.
Chen is faced with the task of trying to achieve superior performance while containing risk. He does this by owning between 50 and 65 stocks and by investing across different segments in the tech sector.
The fund will look at large, small and medium cap stocks and diversify geographically with a focus on the US, Asia and Europe.
With technology constantly changing, Chen tries to spot trends in order to stay ahead of the crowd. "We are not right all the time, but we try to be right more often than our competition," he says.
He sees the Internet and storage management sectors as the trend for the late 1990s and early in the next century.
Some of his favorite picks play on this. For example, one of Chen's top holdings is Yahoo! (quote, chart, profile) because of its venture, Yahoo! Japan.
Yahoo! Japan is a 50-50 joint venture with Softbank. It is the leading Internet portal in Japan but Japan has half the population of users on the Internet as the US.
The fund's international holdings are often a result of taking a theme that's currently in play in the US and finding an area around the world where it's not yet recognized.
Another top holding is Qualcomm (quote, chart, profile). Chen is excited about Qualcomm's positioning in the booming wireless industry. Basically every major telecom company has agreed to Qualcomm's intellectual property rights including Ericcson (quote, chart, profile).
"For the next several years, cellular phone equipment manufacturers will be paying royalties to Qualcomm," says Chen. The stock has tripled in the last four months and Chen still sees it going higher.
Another top pick is Uniphase (quote, chart, profile), which just combined with Canada's JDS Fidel to create a leading optical communications component company.
"Optics are playing a big role in fulfilling the world's thirst for bandwidth," says Chen.
Chen likes the Internet hosting company, Exodus Communications (quote, chart, profile). Their clients make up a "Who's Who" of companies on the Web and they are able to take advantage of scale and bandwidth to get better telecom rates than individual companies could.
They also provide back-up service and outsourcing. "As the Web continues to grow, Exodus stands to be a prime beneficiary," he says.
The fund was founded in December 1996. Minimum initial investment is $5,000.
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