Big Bucks and others, FYI.
Paul V.
The Wall Street Journal -- March 2, 1998
Science-Tech Funds' Rebound Is
Debated
----
By Richard C. ten Wolde
Staff Reporter of The Wall Street Journal
NEW YORK -- Science and technology mutual funds have risen from their
ashes this year, but whether they can maintain their current climb is far from
certain.
After crumbling in the fourth quarter, science and technology funds posted an
average return of 9.66% in 1997, according to Lipper Analytical Services Inc.
That hurt, because the average fund investing in Standard & Poor's 500 Index
stocks gained 32.6%.
However, science and tech funds have been leaders this year, with the average
fund in the sector gaining 15.64%. The stocks in which they invest have soared
over the competition and pushed the Nasdaq Composite Index to record levels.
The Nasdaq index has risen more than 13% this year, compared with the S&P
500's roughly 8% gain.
Some money managers warn the sector isn't for the faint-hearted, and that the
funds' strong climb may be short-lived. Managers expect the sector to
experience continued turbulence this year with potential for the stock market
to cool and as the U.S. market is influenced by the economic turmoil in Asia.
"I'm wary of the recent run-up. It could be a head fake," said Paul Meeks,
director of technology research for Jurika & Voyles Inc. in Oakland, Calif.
Mr. Meeks also manages the Jurika & Voyles Mini-Cap Fund, a portfolio that
invests about 13% of its assets in the technology sector, according to
fundtracker Morningstar Inc. That fund has an annualized gain of 33.90%
during the past three years.
Mr. Meeks said that while companies' earnings haven't shown the full brunt of
the Asian economic turmoil, the trouble could become evident as firms report
first-quarter performance. "I'm not jumping on the bull bandwagon yet," he
added. Furthermore, some financial advisers are recommending that clients
pause before jumping into a tech fund. David Yeske, a certified financial
planner in San Francisco, said he warns investors that all the growth potential
is factored into the stock prices.
"I believe technology is going to continue to grow and our economy is going to
get better because of the technology they provide," Mr. Yeske said, "but I
don't think every good company makes a good investment."
Mr. Yeske said the tech stocks have price tags that make him search for other
values. Fund managers agree that the picture isn't as appealing as the recent
gains may indicate. Though the sector is less likely than the overall market to
cool off, said Chip Morris, portfolio manager of the T. Rowe Price Science &
Tech Fund, "a lot will depend on the broad market.
"If interest rates stay low and valuations for the broad market stay at high
levels compared to the historic norm, the market and the tech stocks should
continue up," he added.
That won't necessarily be the case, but managers see some good bets in the
technology sector. Mr. Morris said firms designing networking software and
providing data services are among the most promising. He has picked First
Data Corp. and Electronic Data Systems Corp. to be breadwinners for the $4
billion fund.
Moreover, T. Rowe's Mr. Morris sees promise in Oracle Corp., a maker of
database and networking software and the world's second-largest software
company. The stock has been pummeled in the past year, but Mr. Morris
thinks management will improve profit margins and earnings. "We think
management has gotten religion. They have evaluated the religion. We don't
know if they will practice the religion," he added.
Mr. Morris has the record to prove he can find values -- his fund has a
five-year annualized return of 25.02% -- but his fund only managed a 1.71%
gain last year. It has slipped in performance from a sector leader to near the
bottom of the group.
While there are picks that still show promise, such as Applied Material Inc.,
Mr. Morris is wary of semiconductor manufacturers and firms that provide
Internet services, such as Yahoo! Inc.
But Tony Rizza, a managing director at Columbus Circle Investors, Stamford,
Conn., sees plenty of promise from semiconductor firms. Columbus Circle,
which is a division of Pacific Investment Management Co., runs the $300
million Pimco Innovation Fund. "If you look at chart patterns in the
semiconductor group, there aren't many that didn't see a 40% to 60% haircut
in their stock price," he said, making them a value now.
Mr. Rizza likes Xilinx Inc. and agrees with Mr. Morris's Applied Materials
play. "I don't see those leadership companies getting hurt. They'll still do
well," Mr. Rizza said. "As we get a better grasp of the effect of the Asia crisis,
I think we will see the market broaden again [to the other tech companies]."
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