Dumped! Growth Managers Drop Old Tech for New Tech in Droves

With the market gyrating wildly and a slew of tech heavyweights reporting quarterly results this week, today would be a great day to put the managers of the 360 big-cap growth funds in a room and ask them what they're holding.

Let's do that, shall we? It'll dig up some good dirt.

The list of tech titans handing out their report cards this week includes: IBM(IBM Quote), Intel(INTC Quote), America Online(AOL Quote), Apple Computer(AAPL Quote), Broadcom(BRCM Quote), EMC(EMC Quote), Sun Microsystems(SUNW Quote), Texas Instruments(TXN Quote), and some shabby software shop (MSFT Quote) run by a college dropout up near Seattle.

As usual, a smattering of growth fund managers and analysts will toss off their soundbites on these stocks this week. But rather than simply rely on what these folks are saying, let's add a healthy dose of reality and take a gander at what they're doing with, well, your money. It'll be worth a thousand words, and maybe more in greenbacks. Instead of asking one expert or the unwashed masses, we're looking at the whims of the expert masses.

The upshot: The smart money continues to gradually abandon mature PC-type tech shops, moving that money into more Net-centric types like JDS Uniphase(JDSU Quote), Veritas Software(VRTS Quote), and Juniper Networks(JNPR Quote). Growth fund managers are pretty heartless about dumping last year's winner if it's not working now. So, if you hold some of their cast-offs, you might ask yourself if the company you bought then is the company you want to own today.

Here's a look at the percentage of large-cap growth funds owning these nine stocks back on Jan. 1 and as of Sept. 30, according to Morningstar.

Who's Hot, Who's Not Some of the tech firms reporting earnings this week have seen significant swings in the percentage of large-cap growth funds owning their shares this year
Stock		Sept. 30	Jan. 1	YTD Return
Intel		77%	70%	-12.1%
Microsoft		74	88	-56.8
Sun Microsystems		67	52	43.8
EMC		60	68	73.8
Texas Instruments		58	49	-16.8
America Online		49	63	-42.5
IBM		33	47	4.8
Broadcom		28	12	64.7
Apple Computer		12	11	-60.9
Source: Morningstar. Performance figures through Oct. 17.

Before we get started, let's point out the limitations of what we're doing. This data is dated and it doesn't reflect whether managers are chipping away at their positions. So this isn't a buy list or a sell list, just a broad look at managers' sentiment on a stock -- as in, they either own it or they don't. It's an intriguing look at what some of the pros and talking heads are up to.

And what they're doing can move stock prices. There's more than $578 billion invested in these funds -- more than any other category of stock funds and twice the amount invested in S&P 500 index funds, according to Lipper. So when enough of them like a stock, it tends to go up -- and they typically only buy stocks they think will go up in the near term.

"As a large-cap growth manager you can't afford to hold stocks that aren't working. You're paid to beat not only a benchmark, but also each other so you can't sit with losing picks," says Bob Tuner, portfolio manager of the no-load (TTOPX Quote)Turner Top 20 fund, among others.

In looking over the funds' rising and falling ownership figures for these stocks, a theme emerges: Old Tech vs. New Tech. Old Tech is companies like Microsoft, Intel, Apple Computer and IBM, companies that rely heavily on maturing PC sales for their growth. The percentage of big-cap growth funds owning these stocks has generally dipped or flatlined, with Intel as the exception.

"You can see a growth shift. Broadcom, Texas Instruments, and Sun Microsystems are growing faster than those others who are more tied to PCs. They're part of what people are calling 'New Tech,' " says Pat Dorsey, director of stock analysis at Morningstar, which doesn't do any investment banking.

After sluggish PC sales led to earnings warnings from Intel, Apple, and Dell, it's safe to say that many growth managers have dumped their stakes in companies like these. Managers probably are also viewing Net blue-chip America Online as a mature (translation: slower growing) company once it merges with media giant Time Warner. Declining online advertising probably isn't helping matters.

Bob Stansky, manager of the large-cap blend, $103.6 billion (FMAGX Quote)Fidelity Magellan fund, just made this shift, replacing Microsoft and Intel in the massive fund's top 10 holdings with server shop Sun Microsystems and data-storage concern EMC. Both shops have primarily hitched their wagons to the Internet.

As you can tell, growth manager types are not a patient bunch.

"I've always said a tech stock is overvalued when it misses expectations and it's undervalued when it beats expectations," says Turner.

"Most growth managers have a six-month time horizon and worship at the church of what's working now," says Dorsey.

Selling these blue-chips isn't easy. Because they typically make up a big chunk of these managers' benchmarks like the S&P 500 and the Russell 1000 Growth, managers don't typically sell their whole stakes in these names unless they're pretty sure they're not going north anytime soon.

That's not to say the money is leaving the tech sector, however. In the first eight months of this year, the average large-cap growth fund's tech stake rose from 34% to more than 44%. Where's it going? New Tech or tech shops that bank more on the growth of the communications networks and the Net.

Tech Tied Even though tech stocks are down, they're an outsize part of the average large-cap growth fund
	Sept. 30	Jan. 1
Technology	44.6%	34.6%
Services (Telecom)	12.7	16.7
Health	11.8	12.6
Source: Morningstar.

You can see that in the rising support for Broadcom, a semiconductor shop whose circuit boards help transmit data over broadband networks. During the year, the percentage of growth funds owning its shares more than doubled, rising from 12% to 28%.

Sun Microsystems, whose servers and software bank on the Net, is another part of the new tech crowd. The percentage of big-cap growth funds owning Sun shares rose from an already high 52% to 67% this year. Like Intel among the Old Tech stocks, EMC is the exception here. The firm is in the hot data-storage business, but managers have reduced their exposure to the stock this year.

Beyond these stocks, there are plenty of other new tech stocks that have grown their way into several managers' benchmarks and hearts. In recent (1037693 Quote)10 Questions interviews, growth and tech fund managers have pointed to stocks like networkers JDS Uniphase, SDL, Juniper Networks and software shops Siebel Systems and I2 Technologies.

Might be worth keeping an eye on these stocks, most of which are, to say the least, riding high this year. Many growth managers have put your money where their mouths are, but there are probably a lot of growth managers with a lot of money in their coffers who haven't bought shares yet.

Rising Stars Looks like growth managers have been putting your money where their mouths are.
Stock	Sept. 30	Jan. 1	YTD Return
JDS Uniphase	52%	23%	14%
Veritas Software	46	11	56.4
Siebel Systems	30	10	145
Juniper Networks	25	7	304
I2 Technologies	22	5	84.7
SDL	20	4	178
Source: Morningstar.

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Lost your copy of Managing God's Mutual Funds? It could've been yours on eBay(EBAY Quote) for three bucks this morning. Unfortunately the auction closed at midday today.

Speaking of eBay, the online auction shop will report earnings Thursday. It's down more than 15% on the year, but it might be one of the few dot-coms to keep its following among the pros. On Sept. 30, about 11% of large-cap growth funds owned shares, compared with 10% on Jan. 1.