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Stansky sees mixed tech fate
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November 14, 2000: 2:41 p.m. ET
Magellan chief finds more promise in Internet and wireless than PC plays
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NEW YORK (CNNfn) - Technology proved one of the brighter spots for Fidelity Magellan during the six-month period ending Sept. 30, but not enough to keep the fund in the black or its manager, Robert Stansky, bullish on the sector as a whole.
And Magellan -- the second-largest fund in the United States -- might have fared better had its holdings not been overweight in retail stocks and underweight in consumer nondurables, utilities and finance.
So said Stansky in a filing of Magellan's seminannual report with the Securities and Exchange Commission this week.
The fund fell 4.5 percent during the six-month period and underperformed the the S&P 500, which dropped 3.6 percent. Year to date through Nov. 13, Magellan was down 7.75 percent, while the S&P had fallen 8 percent.
Tough times for techs tied to PCs
In the report, Stansky, who was not available for an interview, credited his stock picking for relative success in an otherwise tough technology environment. Judging from his comments, those companies focused more on developing the infrastructure for the Internet and wireless applications will fare better than those closely tied to the PC industry.
 Overall, it was "a bullish read for stock pickers," said Jim Lowell, editor of the independent FidelityInvestor.com. And given the changes to Magellan's portfolio, Lowell added, it is clear Stansky is beginning to pick and choose among what have been considered the leaders in the technology sector.
Many of the "old line" tech names were at "stratospheric" valuations back in March, Stansky said, and were hurt by a slowing in corporate spending on technology, among other things. Companies such as Cisco, Microsoft, Intel and Texas Instruments, all of which were in the fund's top 20 holdings at the end of September, were especially hurt by reduced demand for desktop computers.
But, Stansky added, "the good news is that the fund owned less of many of these companies than the S&P 500 as I focused more heavily on other areas of technology"
Stansky cited his investments in EMC, a computer-disk-memory hardware and software maker; Sun Microsystems, a manufacturer of workstation computers, storage device and servers; and Juniper Networks, which designs and sells Internet routers. All three thrived on the back of "continued solid earnings growth – much of it tied to the continued build-out of the Internet and other communications systems worldwide," Stansky said. Both EMC and Sun Microsystems were in the fund's top 10 holdings at the end of September.
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 MAGELLAN'S TOP 5 HOLDINGS AS OF 9/30/00
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General Electric
Citigroup
Cisco Systems
Exxon Mobil
Home Depot
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His purchases in the sector during the six-month period, many of them New Economy plays, included Palm Inc., Ciena Corp., Agilent Technologies, 360networks and Internap Net, according to FidelityInvestor.com.
Going forward, prospects for technology stocks will be mixed in the near-term, Stansky said. Citing the slowdown in corporate spending and the number of earnings warnings that have come out so far, he said, nevertheless, "Some tech companies likely will do well if they find themselves in the sweet spot of their product cycles. Also the build-out of the Internet continues full steam ahead and benefits many tech companies. I think one of the keys to strong performance from tech stocks in the near term is consistent strength in earnings growth among the leading companies in the sector."
Retail proved a wrong turn
Stansky's bet on retail stocks proved a liability during the six-month period. With 2.4 percent of the fund's assets in Home Depot alone – that was more than twice as large as the stock's weighting in the S&P 500 – Stansky was betting on the company's long-term growth potential. But investors worried that higher interest rates and a spending slowdown would lower demand for building products and hurt Home Depot's near-term earnings potential, he said. Those worries helped send the stock down sharply during the period. It is currently trading nearly $30 beneath its 52-week high.
The fund also was hurt by an underweighting in consumer nondurables, utilities and financials, sectors that typically make good defensive plays in high-interest-rate environments, he said.
Stansky also underweighted his healthcare plays – another good defensive sector. But strong performances by his picks, among them Cardinal Health and Eli Lilly, helped compensate for that fact, he said. 
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