And just who was buying?: "Some Big Fund Managers Trimmed Tech Holdings
By PUI-WING TAM
Staff Reporter of THE WALL STREET JOURNAL
If you are one of the individual investors who recently stampeded into
technology mutual funds, the following might give you pause: Some of the
savviest professional stock pickers have been doing just the opposite of
you.
An array of well-known managers who run
diversified U.S. mutual funds -- including
Garrett Van Wagoner of Van Wagoner
Funds, Robert Stansky of the giant Fidelity
Magellan Fund, Drew Cupps of Strong Enterprise Fund and Bob Smith of
T. Rowe Price Growth Fund -- recently pared back their tech holdings or
began deploying new cash into nontech stocks.
Whew! It couldn't have been better timing for these managers. Tuesday,
the tech-heavy Nasdaq Composite Index plummeted 229.46 points to
3901.69, the biggest one-day point decline in its history.
Even some managers at Janus Funds, the Denver fund firm that has
generated red-hot performance through adroit selection of the
best-performing of the long-soaring tech stocks, have spent more time
exploring the prospects of the nontech companies.
Scott Schoelzel, manager of the $32 billion-in-assets Janus Twenty Fund,
says he has recently been "trying to find companies in more traditional
businesses who are harnessing the power of the Web," such as
conglomerate General Electric Co. Last year, Janus Twenty rose 65%
because of big bets on tech stocks such as America Online Inc.
Adds Mr. Schoelzel, "With every dot.com company going up 15 points a
day, the whole market seems to be fixated on the hourly moves of eBay. I
need to try and look where I think the market will be three to six months
from now."
The shifting sentiment underscores how worryingly high the prices of many
tech stocks had soared. With shares of e-tailer Amazon.com up 50% last
year and a quintupling of the stock of search engine Yahoo! Inc., these
fund managers were betting that the tech sector's robust 1999 gains
wouldn't be replicated this year.
"For selected tech companies that have had big runs, we don't see the
same opportunity this year to make as much money," said Peter Kris, a
managing director of Van Wagoner Funds in San Francisco, in an
interview on Monday, when the Nasdaq Composite Index was gyrating
wildly but ended the day at still another record high. Last year, some Van
Wagoner funds gained nearly 300%, thanks largely to big tech holdings.
For the Van Wagoner funds, tech was down to 60% of assets on
Monday, from 65% a few months ago. At T. Rowe Price Growth Fund,
tech stood at 26% of assets on Monday, down from 29% in December,
and its manager expected a continued decline to 22%. Fidelity Magellan
began reducing its exposure to tech relative to the overall market this past
spring. As of late November, the world's largest fund had 21.6% in tech,
compared with 23.5% in the Standard & Poor's 500-stock index.
The tech reductions in these managers' portfolios contrast sharply with the
heavier tech holdings in many individual investors' portfolios. In November,
investors pumped money into tech-heavy funds such as Fidelity Aggressive
Growth Fund, Janus Global Technology Fund and Fidelity Growth
Company Fund. Sales of these funds raced ahead of those of longstanding
bestseller Vanguard 500 Index Fund, which mirrors the S&P 500 index,
according to Financial Research Corp., Boston.
To be sure, few fund managers have pulled out of tech completely. Most
agree that tech remains an area with huge earnings-growth potential. And
many professional stock pickers recently have jumped into the sector;
some have been chasing performance after shunning tech as too expensive
in early 1999.
As a result, figures from Chicago fund-tracker Morningstar Inc. show the
average U.S. stock fund's tech allocation still creeping upwards. At the end
of December, the average fund had 23.26% in tech, up from 19.12% in
June. But the rising allocation also reflects the bigger market capitalizations
of the tech stocks held in the mutual funds. In short, even if a manager
didn't add to his fund's tech holdings, his tech allocation would increase
simply because the stocks' value had increased.
But "it's silly to be increasing your exposure to tech now," cautions Mr.
Cupps, manager of the $550 million-in-assets Strong Enterprise Fund,
who reduced his tech allocation to 68% as of Tuesday, down from 75% in
December. Last year, Strong Enterprise Fund soared nearly 190%,
courtesy of tech.
Pointing to companies such as Qualcomm Inc. and Yahoo as examples of
stocks "stretched to the upper limit," Mr. Cupps says he has redeployed
assets to health-care stocks such as Columbia/HCA Healthcare Corp. He
also has raised cash slightly, to about 4% of assets from 3% in December.
At the $5.6 billion-in-assets T. Rowe Price Growth Fund, manager Mr.
Smith trimmed tech stocks such as Yahoo and Sun Microsystems Inc. in
the past few weeks. He then bought beaten-down financial stocks
including Freddie Mac, as well as pharmaceutical giant Warner-Lambert
Co. He also has raised cash to about 5%, up several percentage points
from December.
The Van Wagoner funds also have boosted cash, to 8% to 12%, from 2%
to 5% in October. Mr. Van Wagoner, too, has gone for health-care
stocks, including medical-device makers. Energy companies also have
caught the manager's eye.
"We'll always be in tech, but we're throwing a word of caution out there
now," says Van Wagoner's Mr. Kris." |
