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Tech funds see bright side
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April 20, 1999: 2:47 p.m. ET
Nasdaq drop on Monday may scare investors, but managers are upbeat
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NEW YORK (CNNfn) - The Nasdaq Composite may be staggering after its 5.6 percent plunge this week, but technology fund manager Bill Keithler says small investors still have some reasons to celebrate.
If, for example, you bought Yahoo! six months ago, your investment would still be up 278 percent despite Monday's losses. And an investment in Microsoft at the same time would still leave you with a gain of 51 percent.
"Even after yesterday's debacle, anybody who's invested in technology stocks over the last six months has to be very happy," said Keithler, manager of the Invesco Technology II Fund.
Techs take a bath
A massive exodus from technology stocks that started last week led to the Nasdaq's second-largest one-day point loss on Monday. Investors fled technology for safer -- and much cheaper -- cyclical stocks.
But some technology managers who have been worried for months about soaring valuations and the impact of Y2K problems said the sell-off actually makes them more optimistic for 1999.
Is the worst over?
"I'm revising my outlook now," said Paul Meeks, manager of the Merrill Lynch Technology Fund. "I'm thinking hopefully we're through the worst."
Meeks on Tuesday said he took advantage of the correction and sold all of his shares in Compaq and software supplier Network Associates (NETA) to increase his stakes in Microsoft, Vitesse Semiconductor (VTSS) and Applied Materials (AMAT).
Meeks said he's still bearish about PC makers, software makers and IT services companies. But he's optimistic about select Internet stocks and telecom equipment makers like Lucent Technologies (LU). He also likes contract manufacturing companies like Flextronics International (FLEX) and Jabil Circuit (JBL).
Among the hardest-hit technology funds on Monday were the ones that concentrate on Internet stocks, said Christine Benz, an analyst at fund-researcher Morningstar. More diversified funds fared better.
"Internet-heavy funds took some of the biggest hits yesterday, but most people watching the tech area have long thought that there's probably been some froth among those stocks," Benz said.
For example, the NetNet Fund lost 12.53 percent and the Internet Fund gave up 10.6 percent on Monday, while the diversified T. Rowe Price Science and Technology Fund fell just 3.19 percent, Benz said.
Cyclical wave short-lived?
Yet despite Monday's losses, Meeks and other managers doubt that investor interest in cyclical stocks will last long.
"If you're a long-term investor, do you really want the same amount of money in Microsoft and (tractor maker) Caterpillar?" Meeks said.
Managers said that technology will continue to be a leader on Wall Street despite the volatility.
"If you want to experience above-average returns, technology is the place to be," said Jay Ferrara, manager of the PSE Technology 100 Index Fund. The fund mirrors the PSE Technology Index.
Ferrara recommends investors look at the biggest names in technology that are number one or two in their sector.
"We've had a violent pullback in the Nasdaq. People were staring at their screens and they couldn't believe it," Ferrara said. "But I'm still very bullish on technology. I don't see a weakness in these companies."
-- by staff writer Martine Costello
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