Tech stock strategies from a pro
With the exception of a rally every now and then, technology stocks, and the funds investing in them, haven't recovered as quickly as most investors would like. But the market has always had a mind of its own. Understanding it, takes the minds of pros.
You might say Marc Klee is a technology geek. As one of three portfolio managers on the John Hancock Technology fund, (NTTFX), Klee has been at the helm of this fund for nearly two decades. "Barry Gordon, Alan Loewenstein and myself have run this fund since it began on January 13, 1983," says Klee, executive vice president of American Fund Advisor, the fund's sub-advisors since 1991.
Throughout its long history, the John Hancock Technology fund has performed as sector funds have---some years have been great and others not so hot. In 1998 and 1999, for example, the fund was up 49 percent and 132 percent, respectively. In 2000 and 2001, it was down 37 and 42 percent, respectively. Through May 15 of this year, it was down 17 percent which is better than the performance of the average technology fund---it's off over 21 percent, according to Lipper.
Performance aside, being a tech fund manager, or a tech fund investor, isn't for those who can't the handle the risks and volatility of sector fund investing. While Klee thinks that technology should be "modestly overweighted" in one's portfolios, he knows the sector is not suited for everyone. "Technology makes up 16 percent of the S & P 500, today. But, does that mean every individual should have at least 16 percent in technology at this time? Absolutely not. Investors are all different, no two are identical and each has different risk tolerances. That's why it's best to have a sounding board, like a broker or financial planner, to talk with before making investment decisions."
Here's more about the John Hancock Technology Fund (1-800-225-5291) from Klee:
Q: With the years of experience you've had in the technology arena, when do you think that the world of technology really moved from being attractive to a small group of investors to mainstream America?
Klee: As far as I'm concerned, the seminal event in the world of technology happened in August of 1981 when IBM put their name on a p.c. for the first time. That changed everything. That changed technology from being a very big ticket expense and a large physical item and turned it into what I call the era of technology for everybody.
Q: Given that tech stocks are sector stocks, what can you tell investors about buy-and-hold strategies in the technology stock arena?
Klee: First, let me say that there are two truisms in the world of technology: One is, change is constant; and two, technology companies never were--- and they are not today--- growth companies. They will always be cyclical growth companies and will always be economically sensitive.
With respect to change, what were the big tech names in 1983? There was IBM and The Bunch: B stood for Burroughs, U for Univac, N for NCR, C for Control Data, and H for Honeywell. Then there were companies like Digital Equipment, Data General, Prime and Wang. And p.c. companies like Commodore, Atari, and Tandy. So, if you were putting together a portfolio of companies like that--and some others--using a buy-and-hold strategy 18 years ago, and hoping to have the money to send a child to college today, you'd better hope that that kid grew up to be 6' 6", weigh 220 and play offensive tackle because that's they only way they are going to college with that portfolio.
Q: What sets your fund apart from other tech funds?
Klee: This is a pure tech fund. Not all tech funds are. We invest in both pubic and private companies and in US and foreign companies. And then, we divide technology into eight segments, semiconductors is one of them and we have a high concentration in those stocks right now. Software is another and is our second largest weighting now.
Q: About how many stocks in the fund and any names we'd all know?
Klee: Right now there are about 64 different names in the fund, we usually keep it between 55 and 75, and the names are broadly diversified.
If you look at the top holdings, most of the names will be unfamiliar to the average investor. So what I'm suggesting is, being a well-know name in technology is not necessarily a positive thing. Investors who go after the popular names are often fighting the last war.
Currently, two names in the top 10 list that investors would know are Cisco and Dell. I like Dell because they are the lowest cost producer of hardware and I think that they have a sustainable advantage as a low cost producer. And Cisco because it is so dominant in many different areas.
Q: Is there anything that's misunderstood about this fund?
Klee: I think the sector is misunderstood. There are many different kinds of technology funds out there. So investors need to know that and to find the fund that suites them best.
Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.
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