If you're in the market for a nice, tech-light value fund to soothe your sickly portfolio, watch your step.
Value funds are typically Wall Street's bargain-hunters, which traditionally has meant they steer clear of pricey tech fare. This tech phobia has kept them in the black over the past year, during which the tech-laden
Nasdaq Composite has dropped 50% and tech bellwethers like
Cisco and
Sun Microsystems have plunged more than 70%.
But now the tattered sector is looking like Bargainville to some daring value pros, and they're buying. We don't know if tech-buying value managers will end up looking like heroes or goats, but we do know that you can no longer safely assume a value fund will steer clear of tech stocks.
To prove our point, this week's I Own What?! is tossing its net into the large-cap value pool, fishing out six funds with at least 25% of their money in the tech sector. That's way above the average big-cap value fund's 10% tech stake, according to Chicago fund-tracker Morningstar. By comparison, tech stocks make up 21% of the
S&P 500.
Of course, many value funds
are still avoiding the tech sector. In fact, the average big-cap value fund's tech weighting has dropped 5 percentage points over the past year. But at June 30, one in five had more than 15% of their money in tech stocks, showing that some value managers are indeed jazzed about tech.
"We've been finding opportunities in tech, telecom and media," says James Yu, co-manager of the
(JFVAX Quote - Cramer on JFVAX - Stock Picks)John Hancock Relative Value fund, which sports a 42% tech weighting. "Our view is that 10 years from now this will look like a great buying opportunity."
The young fund, launched last November, was born in the midst of the Nasdaq's collapse and its portfolio reflects that. Value managers look for stocks they think are oversold; portfolio managers Tim Quinlisk, Scott Mayo and Yu are betting that investors have wrongly tarred the shares of satellite TV shops like
Hughes (GMH Quote - Cramer on GMH - Stock Picks), which owns DirecTV, and
Pegasus Communications (PGTV Quote - Cramer on PGTV - Stock Picks). The stocks are down 30% and 69%, respectively, over the past 12 months.
"We're looking at companies from the bottom up and we like satellite TV," says Yu, whose fund has 20% of its money in satellite TV stocks. "You get solid revenues per month like cable companies, but your margins are much better."
But don't chalk all these funds' tech appetites up to youth or timing. Kent Simmons has run the
(NBSSX Quote - Cramer on NBSSX - Stock Picks)Neuberger Berman Focus fund, which has about 30% of its money in tech, for more than a decade. And Charles Smith has run the
(SBCSX Quote - Cramer on SBCSX - Stock Picks)Seligman Common Stock fund, which has a 26% tech position, since its 1996 inception.
While each of these funds has a bigger tech stake than its peers, their picks are far from homogeneous. Value is in the eye of the beholder and tech is a vast sector, so there's a range of tech stocks in these portfolios.
The
(UMBSX Quote - Cramer on UMBSX - Stock Picks)UMB Scout Stock and Seligman Common Stock funds are sticking with bellwethers like
Intel,
Microsoft and
IBM. It's not uncommon to find stocks of established shops like these in value portfolios -- less decorous growth managers call them "chicken tech stocks" because their maturity makes their stocks' peaks and valleys less extreme.
But there are bolder choices here, too. Gabelli's top tech pick is bumbling networker
Lucent, down a whopping 85% over the past 12 months. The company's only consistency in recent years has been in missing analysts' earnings expectations, laying off staff and losing customers. But the stock is down so far now that any good news could lead to big gains.
And then there's the young Hancock fund with its fat satellite TV bet.
It might be tempting to scoff at these folks' foray into the stumbling tech area. Some of their picks have no doubt hurt returns recently, but these managers' records prove they've been right more often than not.
The Neuberger Berman fund's 17.5% annualized gain over the past 10 years beats the S&P 500 and 97% of its peers. Tim Quinlisk, the lead manager of the Hancock fund, has a solid record running the John Hancock Large Cap Value fund, which beat more than 90% of its peers over the past one and three years.
Also, value czar Bill Miller has been
adding trounced telecom shares like
Tellabs and
Corning to his
(LMVTX Quote - Cramer on LMVTX - Stock Picks)Legg Mason Value fund, which has a 16% tech stake. The stocks are down more than 77% over the past year, but Miller is the only fund manager to beat the S&P 500 10 years running.
The bottom line is that tech-stuffed growth funds have been top sellers for years, leaving many investors with all the tech exposure they need or want. If you're in this camp, you might want to look for a lower-tech value fund. We've already
shown you a list of those.
Ian McDonald
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