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How 3 funds handle techs
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December 10, 1999: 2:01 p.m. ET
As the Nasdaq breaks new ground, managers try different approaches
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - The Nasdaq seems to gallop into record territory every day, and it hasn’t made life any easier for fund managers who invest in technology.
Returns are soaring, but prices are so high it’s like shopping on Rodeo Drive. How are they doing it, you wonder?
Apparently there are many different strategies. One small-cap "blend” fund manager is trimming his winners while a true tech manager is adding to his positions and a mid-cap growth manager is avoiding the dot.coms.
"I’ve been astounded at the rate of growth in this technology charge,” said Robert Cummisford, manager of Kent Small Company Growth Fund. "Thankfully, we built our tech position in the spring.”
Kent Small Company Growth Fund, with $721 million in assets in investor and retail shares, is a small-cap blend fund that invests in growth and value stocks. About 32 percent of the portfolio is in technology. The fund is up 14 percent year to date as of Nov. 30, according to Morningstar.
Cummisford hasn’t been doing any buying in the past six weeks since the Nasdaq has mushroomed 28 percent and hit its 21st record close in 29 sessions.
Rather, he’s been selling positions he bought in the first and second quarters that are getting so huge they no longer belong in a small-cap fund.
"We have quite a few names that have had record runs,” Cummisford said. For example, he started buying Exodus Communications (EXDS) at 23. On Thursday, the stock closed at 162-1/2.
Cummisford said it’s hard to keep pace with the market unless you own big stakes in the high-flyers. Yahoo! (YHOO) rose more than 60 percent in just a week, while a small cap stock like Harmonic Inc. (HLIT), a maker of digital and fiber optic systems, is up about 700 percent this year.
The fund falls in the top third of its category at Morningstar for year-to-date returns as of Nov. 30. Cummisford knows his fund wouldn’t come close to its peers that have made big sector bets. But he argues that the strategy of mixing growth and value allows him to capture some upward growth but cushion a fall in a bear market.
"The growth (in technology) has been amazing,” Cummisford said. "But at some point you have to be reasonable and take a step back and take some sort of breather. We’re trying to position the fund to be good in both kinds of markets.”
Abel Garcia, manager of the $3.5 billion United Science and Technology Fund and the $129 million Waddell & Reed Science and Technology Fund, tries to bring giddy investors back down to earth about the market.
"I tell people it won’t always look this good,” Garcia said.
United Science and Technology Fund is up 80 percent year to date as of Wednesday, while the smaller fund is up 150 percent in the same time. He’s been adding to his positions with new cash coming into the funds rather than buying new names.
Garcia said part of the Nasdaq feeding frenzy could be because other growth managers who used to rely on consumer companies like Gillette (G), Coca-Cola (KO) and Procter & Gamble (PG) have to buy Microsoft (MSFT) and other expensive names to get the same bang for their buck.
"It’s a melt-up,” he said.
Among Garcia’s top stocks in United Science and Technology Fund are Yahoo!, Veritas Software (VRTS), America Online, Cisco (CSCO) and Citrix Systems (CTXS).
One of his favorite stocks in the larger fund is Netopia (NTPA), which helps companies build a presence on the Internet.
In the Waddel & Reed Science and Technology Fund, Garcia’s biggest names are Broadvision (BVSN), Vignette (VIGN), Phone.com (PHCN), JDS Uniphase (JDSU) and DoubleClick (DCLK).
Garcia said the smaller fund is up more because it can invest in lucrative IPOs.
"It owns little companies that will become large companies,” he said.
Garcia in the past has used health-care and drug stocks as a defensive investing strategy when technology is down. Lately, he’s lightened up in those sectors, though he still owns some drug stocks like Merck (MRK) and Warner-Lambert (WLA).
The Internet has changed the technology sector so much that technology may not go through up and down cycles like it used to, Garcia said.
"I was saying five years ago that the Internet is the new railroad,” Garcia said. "It’s a new way of how we work, how we play, and how we entertain ourselves.”
Nevis Fund has enjoyed life at the top of the performance charts all year, long before the Nasdaq started its trajectory.
The fund, which invests 52 percent of its portfolio in techs, went from $1.5 million in assets when it launched in June1998 to $86 million today, Co-Manager David Wilmerding said. It is up 245.7 percent year to date as of Nov. 30 and is ranked first in its mid-cap growth category at Morningstar.
"We love volatility; that’s how you perform,” Wilmerding said.
The fund owns about 25 names, many that he bought at one-quarter of the price a year ago. But he refuses to hold any Internet stocks because their valuations "don’t resemble reality.”
"It is much more difficult to invest in technology than it was years ago because it’s so much more complex,” Wilmerding said. "The undercurrents are harder to identify and the marketplace is much broader. Yet that also leads to more opportunities.”
Among his favorite stocks are companies that provide "enabling technology” for the Internet, like Vitesse Semiconductor (VTSS) or Rational Software (RATL).
The top holding is Primus Knowledge Solutions (PKSI), which provides sophisticated software programs for technical "help desks.”
It also likes the radio tower companies, like American Tower (AMT) and SBA Communications (SBAC).
The fund stays away from financial stocks and cyclicals, but it can invest in any sector it wants. For example, it owns drug company Connetics (CNCT).
(Incidentally, the fund is named for a cloud-shrouded mountain in Scotland, where Wildmerding worked for a year, not the swank Caribbean island).
Finally, as technology stocks roar, here’s how some funds that invest in intermediate bonds are managing, according to Lipper Analytical Services:
The top winners for the week are Investek Fixed Income Trust, institutional shares, up 1.43 percent for the week but off 0.05 percent year to date; followed by ING Intermediate Bond Fund, class A shares, up 1.19 percent for the week but down 0.06 percent year to date; and Dreyfus Intermediate Term Income Fund, up 0.95 percent for the week and up 5.56 percent year to date.
The three losers for the week are: BT PreservationPlus Fund, institutional shares, up 0.11 percent for the week and up 5.15 percent year to date; followed by UAM Analytic Master Fund, up 0.21 percent for the week and off 1.24 percent year to date; and Guardian Investment Quality Bond Fund, class A shares, up 0.95 percent for the week but down 0.04 percent year to date. 
-- Staff Writer Martine Costello covers mutual funds for CNNfn.com. If you have any comments on mutual funds you can contact her at mailto:cnnfn.interact@turner.com
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