An interesting article from Saturdays Globe and Mail ( Canada's National Newspaper) Section N page 1.
I think it may, for the most part, fall in line with your take on the markets and the Nas.
The hyperlink doesn't work for some reason..so here it is.
P.S. Delighted to hear about the positive news on your home front. Will remember your family in my prayers.
Entitled : Tech Fire Sale
Tech Fire Sale?
The tech sector has gone from hero to zero in a frighteningly
short period of time. With stocks well off their highs, is it time
to dip back in? As SHIRLEY WON discovers, many market watchers
say yes, although risks abound
SHIRLEY WON
Saturday, October 21, 2000
The day before the technology-laden Nasdaq composite index plunged last week to its
lowest close this year, portfolio manager Duncan Stewart called his mom in Vancouver, and
told her it was time to buy his technology fund.
"She had some cash, and she asked when should she buy more," says Mr. Stewart, a partner
at Toronto-based Tera Capital Corp.
"I am not telling people out in the world at large though that it is necessarily the right thing to
do," he added. "Caveat emptor -- talk to your financial adviser, and it all depends on your
risk tolerance."
But Mr. Stewart, whose Navigator Canadian Technology Fund logged a 122.7-per-cent
return over the year ended Sept. 30, has been busy buying beaten-down tech stocks with the
cash he built up in anticipation of the current downturn.
Despite wild swings in tech stocks this week, he is still boldly predicting Nasdaq will hit a
record 6,000 by March. "I suspect that -- if anything -- that is likely to be conservative," he
adds.
Mr. Stewart is among market watchers who are bullish on the tech sector -- especially over
the next six months when their stocks typically rally. But others still remain cautious, warning
that the tech sector -- while a secular growth story -- is still not immune to a slowdown in
global economic growth.
Last week, earnings jitters combined with turmoil in the Middle East sent the Nasdaq
composite index tanking to its low of 3,074.68 points for the year -- nearly a 40-per-cent
drop from last March's record high of 5,048.62.
Nasdaq has since experienced a a bit of a bounce as investors nervously waited for, and
reacted to this week's third-quarter earnings reports by tech bellwethers like Intel, IBM,
Microsoft and Nokia.
Mr. Stewart is not worried about slower earnings by some companies for the third quarter,
saying that period typically is one of the weakest quarters because of the traditional summer
slowdown in European sales. "That's because everyone in Europe goes on holiday for two
months," he said.
But good news will soon start overwhelming the bad news, and stocks should rebound, he
said. "It is my anticipation that the fourth quarter will, in fact, show the highest level of
high-tech quarterly earnings in history."
Mr. Stewart said he is even more confident of his prediction now that Nokia -- the world's
largest cell phone maker -- beat third-quarter earnings expectations, and said it expects a
record profit for the fourth quarter.
When Nasdaq rallied to a record during the first three months of this year, he said the U.S.
Federal Reserve Board was raising rates and there were serious concerns about inflation. But
there is now a possibility the central bank may cut rates by that same time frame next year, he
added.
"All other things being equal -- if you have stronger earnings and falling rates instead of rising
rates -- one would expect the Nasdaq composite to be trading at higher valuation than it did
in March of 2000," he said.
Other fund managers are also bullish for the next six months but their caveat is that the
strongest returns will come from a new breed of companies as opposed to "old world
technology" companies like Intel, Microsoft and Motorola.
Toni Shimura, a fund manager at MFS Institutional Advisors Inc. of Boston, said the period
from mid-October to March is seasonally the best time for tech-stock returns but suggests it
will be "tough" for Nasdaq to hit 6,000 by March.
"Six months ago, many things were rosy in technology but I think what we have seen . . . is
that the series of six interest rate increases that the Fed has put into place has started to slow
the world," said Ms. Shimura, who manages the Spectrum American Growth Fund,which
is half invested in techs.
She has been selling what she describes as the "old world technology stocks" -- like major
personal computer, computer chip and cellphone makers -- because they are economically
sensitive, and are seeing growth rates slow. She no longer owns big names like Intel, Dell,
Motorola, Lucent, Xilinx, Altera, Nokia, Ericsson, Micron Technology and Applied
Materials.
But Ms. Shimura is very positive on other high-growth areas like optical networking. "With
the demand for high speed data and all things happening in business-to-business
e-commerce, there is a demand for the pikes or conduits that will allow all of this data to flow
very rapidly between all the users."
She owns stocks like Ciena, a leader in optical networking equipment; Corning, a maker of
optical fibre, and Nortel, the telecommunications equipment maker with a large optical
component business. She also favours emerging networking firms like Juniper Networks and
Extreme Networks; software companies enabling e-commerce like i2 Technologies and
Ariba, and data-storage software firms like Veritas Software, Brocade Communications
Systems and Emulex.
Ian Ainsworth, a portfolio manager at Toronto-based Altamira Investment Services Inc., said
he too sees "good potential" for a rally going into the new year but doesn't believe Nasdaq is
a good proxy for tech stocks.
Mr. Ainsworth, who manages the Altamira Science & Technology Fund,said Nasdaq is
overweighted in maturing companies that "don't have as much growth potential," compared
with some companies that are less dominant in Nasdaq.
"You can own Dell, Microsoft and the big commodity semi-conductors and you'd not be
performing this year," he said. "If you owned the newer technologies -- the companies that
will make up the future Nasdaq -- then you are doing better."
In his fund, Mr. Ainsworth said he is underweight the weaker tech sectors like PCs,
dot-coms, cellphones and computer chip makers. Instead, he likes companies like Juniper,
Ciena, Sycamore Networks, Celestica, Extreme Networks, Applied Micro Circuits, Nortel
and BEA Systems.
Stephen Kahn, a Toronto-based portfolio manager with Talvest Fund Management Inc., said
he too believes there will be a tech rally in the next six months and "some areas of technology
are going to do a lot better than others."
Mr. Kahn, who manages the Talvest Global Science & Technology Fund, said he believes
optical equipment makers -- like Nortel, Ciena and Sycamore -- will do well as will handheld
computers makers like Handspring and Palm.
"I am bullish on the tech sector," he said. "I think there are a lot of good things happening --
especially at these prices. A lot of the risk has been priced into the stocks whereas a month
and half ago, they were priced for perfection."
Richard Bernstein, chief quantitative strategist at New York-based Merrill Lynch & Co., has,
however, been bearish on the technology sector for a year and a half, and is still "very
cautious" on Nasdaq.
"Technology companies are inherently, tremendously cyclical," Mr. Bernstein argued. "As the
global economy is slowing, cyclical stocks are seeing their earnings growth slow and that's
what's happening in the technology sector. But they are priced as very stable, very
fast-growing companies."
He said a prediction of Nasdaq reaching 6,000 is "optimistic" but conceded "there might be
some kind of short-term bounce." But his outlook for Nasdaq for the next 12 months is a
slightly negative return.
Mr. Bernstein said the technology sector is expensive relative to other sectors and dismisses
prospects in the new breed of tech firms.
"There are these rotating bubbles in the tech sector -- it may be optics, infrastructure or
B-to-B. I personally don't think it's the way to invest. It's safer to go into other areas as
opposed to speculating in technology."
William Sterling, a New York-based manager with C.I. Fund Management Inc., is also
skeptical about Nasdaq reaching 6,000 by next spring. "The next two quarters are going to
be the most challenging in terms of profits because of the slowdown that is unfolding in the
global economy," he said.
Mr. Sterling's "somewhat cautious" stance is reflected in the C.I. Global Fund -- a global
equity fund whose technology weighting has been pared down to about 15 per cent from
about 46 per cent at the end of 1999.
The manager's cautious outlook is based on other indicators, including his belief the Fed is
not going to lower rates soon.
"An aggressive Fed easing -- if that were on the horizon -- would help to support the bullish
case for the Nasdaq," Mr. Sterling said.
"But with the unemployment rate in the U.S. at 3.9 per cent; with oil prices where they are,
and with inflation well above 3 per cent, those are not the conditions that make the Fed
anxious to cut rates anytime soon."
Analysts pick their favourite funds
Hang onto your seat belts.
When investing in technology funds, there is potential for high-flying returns. But these days,
the only certainty appears to be volatility.
Technology funds have posted some eye-popping gains for the year ended Sept. 30. But
most of that performance stems from the frenzy that sent tech stocks rising sharply in
November and December.
Performance has fallen off since the tech-heavy Nasdaq Stock Market began heading south
last spring. "Next January, people are going to be pretty shocked by their one-year
performance numbers," says Scott Barlow, an analyst at Toronto-based Merrill Lynch
Canada Inc.
With Nasdaq hitting its year-to-date low last week and the bullish stance of some market
observers -- albeit with caveats -- you may be considering investing in the sector.
We asked analysts to pick two tech funds for aggressive investors, and two diversified stock
funds -- that typically have heavy tech weightings -- as a chicken's way to get exposure to
this sector.
Merrill's Mr. Barlow likes AIM Global Technology because of its "terrific management,"
and strong research capabilities at Amvescap PLC.
He is also a fan of Trimark Discovery, a small-cap fund that invests mostly in technology
stocks but often has 10 to 25 per cent in biotechnology.
Among diversified funds, Mr. Barlow suggests C.I. Global, which will overweight technology
when its managers feels it's the place to be.
The fund had close to 46 per cent in technology at the end of 1999 but that weighting is now
down to around 15 per cent. He also likes BPI Global Equity because its managers'
strength has been overweighting in sectors that will outperform, and more recently technology
has been one of them.
Peter Loach, an analyst at Toronto-based BMO Nesbitt Burns Inc., also likes AIM Global
Technology because of its "talented manager" who is backed by a strong team. He also
recommends C.I. Global Telecommunications Sector, saying its manager Stephen Waite is
very "in tune" with the sector.
Among diversified funds, he favours Universal European Opportunities, which tends to
overweight technology and which would provide further diversification for Canadian investors
who tend to be underweight Europe. He also likes BPI Global Equity, saying its managers
are "nimble" stock pickers.
Stephen Kangas, an analyst at Toronto-based Fundlibrary.com, likes Altamira Science &
Technology because of "continued outperformance," and because its managers have been
"fortunate and smart" at identifying the next waves in technology.
He also likes AIM Global Technology because of its performance record, noting it is slightly
more diversified than the Altamira fund.
Among diversified funds, Mr. Kangas likes Global Strategy Rothschild World Companies,
which includes major tech names like Nokia, Cisco and Vodafone. He recommends
Universal Future, a Canadian equity fund whose mandate is to be half invested in
technology. The balance is currently in resources and cash.
James Gauthier, an analyst at Toronto-based Fundmonitor.com Corp., suggests BMO
Global Science & Technology as a conservative, pure tech play. He also likes Talvest
Global Science & Technology because of its performance and the fact it's also the largest
personal holding of its manager Stephen Kahn. This suggests "the manager is going to be as
prudent as he can be," Mr. Gauthier said.
Among diversified funds, Mr. Gauthier recommends Universal Future because technology
investing is part of its mandate and because this Canadian equity fund also has 25 per cent in
foreign stocks. He also likes Spectrum American Growth. This U.S. equity fund is half
invested in technology stocks, and that has been a strong contributor to its stellar
performance, he said.
Shirley Won
Short-term pain, long-term gain
As of Sept. 30
Tech funds
Net assets Returns
Fund name ($million) 1 month 6 months
Aim Global Technology $1,212 -4.8% -2.4%
Altamira Science & Technology 1,080 -5.0 +9.9
BMO Global Science and Technology 485 -5.6 +0.4
C.I. Global Telecommunications Sect 1,654 -8.1 -10.3
Talvest Global Sci. & Tech 477 -4.6 +8.1
Trimark Discovery 1,374 -4.3 -8.3
Returns
1-year 2-years 3-years 5-years
Aim Global Technology +99.2% +114.8% +62.2%
Altamira Science & Technology +174.8 +145.4 +85.5 +59.3%
BMO Global Science and Technology +38.2 +37.0 +36.5
C.I. Global Telecommunications Sect +76.9 +80.5 +67.9
Talvest Global Sci. & Tech +131.1 +134.8 +75.4
Trimark Discovery +63.5 +70.1 +37.5
Funds with big tech holdings
Net assets Returns
Fund name ($million) 1 month 6 months
BPI Global Equity $2,134 -3.6% -11.4%
C.I. Global 3,227 +0.5 -4.0
Global Strat Rothschild Wrld. Cos 923 -6.1 -15.1
Spectrum American Growth 1,248 -3.9 -7.4
Universal European Opportunities 1,532 -6.0 -18.1
Universal Future 2,015 -7.8 -2.5
Returns
1-year 2-years 3-years 5-years
BPI Global Equity +28.2% +28.6% +21.5% +21.2%
C.I. Global +39.0 +29.1 +20.5 +20.2
Global Strat Rothschild Wrld. Cos +38.8 +41.2 +23.8 +22.7
Spectrum American Growth +56.4 +45.7 +33.3 +30.2
Universal European Opportunities +30.5 +26.0 +21.2 +25.4
Universal Future +43.6 +42.7 +18.4 +19.4 |
