Some Growth Funds That Take a Low-Tech Approach

Investors spooked by the Nasdaq's recent turbulence may want to look at growth funds light on tech.
By Beverly Goodman ,

It's deja vu all over again.

Investors rejoiced in 2003 as the

Nasdaq

rose 50% and the

S&P 500

climbed 33%. Money poured into growth funds: Large-cap growth funds topped the list of inflows in 2003, with $42.4 billion in net new money, according to AMG Data Services. Small-cap growth funds took in $24.4 billion, the third highest category for inflows.

Once again, though, investors seem to have confused the terms "technology" and "growth" -- the former is a subset of the latter,

not

a synonym. "It's not a prerequisite of growth funds to be invested heavily in technology," says Jeff Tjornehoj, an analyst at Lipper, a

Reuters

company. "All the headlines of 1999 notwithstanding." And now that technology is flagging in early 2004, investors are left scurrying for other options.

Here they are.

The following are a few domestic growth funds that are not excessively weighted toward technology. All keep their technology stake near 25%; slightly above the S&P 500's 21%. They all boast impressive long-term records, good management and expense ratios that are at or below the category's average. Whether you're looking for a large-cap, mid-cap, or small-cap fund, below we have a suggestion. (All data comes from Morningstar.)

(TRBCX) - Get Report

T. Rowe Price Blue Chip Growth routinely lands on "best funds" lists of all sorts. Managed by Larry Puglia since its 1993 inception, the fund takes a more sober view of growth stocks, choosing companies that are market leaders, generate a lot of free cash flow, have high returns on invested capital and also sport reasonable valuations. That leads Puglia away from riskier technology companies, and more toward established ventures such as

Microsoft

(MSFT) - Get Report

,

Cisco

(CSCO) - Get Report

and

Vodafone

(VOD) - Get Report

(all in the top 10 holdings as of Sept. 30).

Growth stocks in other sectors are better represented here than in almost any other fund of its caliber: Puglia has big stakes in

UnitedHealth Group

(UNH) - Get Report

,

American International Group

(AIG) - Get Report

,

First Data

(FDC) - Get Report

and

General Electric

(GE) - Get Report

. The fund had a rough time in 2001 and 2002, trailing the S&P 500 by 2 percentage points each year (although beating 75% of its peers), but it has capitalized nicely on the rebound of 2003, returning 29.75%.

The

(MERDX) - Get Report

Meridian Growth fund is "a contender in both good times and bad," according to Morningstar analyst Christopher Davis. Manager Rick Aster looks for midsized companies growing their earnings at least 15% a year, but isn't willing to pay an outrageous price for such growth. That means the stocks in his portfolio trade at a multiple that's below the category average -- a strategy that held the fund back in the late 1990s.

Meridian isn't for investors looking to keep a strict size allocation. Aster often buys smaller companies and doesn't have a strict sell policy for when his mid-caps become large-caps. And with just 50 stocks typically in the portfolio, that can mean less mid-cap exposure than some investors want. But names like

DeVry

(DV)

,

Regis

(RGS) - Get Report

,

Silicon Valley Bancshares

(SIVB) - Get Report

and

Granite Construction

(GVA) - Get Report

have helped propel the fund toward its 47.9% return in 2003. The fund has performed in or near the category's top 10% for the trailing three-, five- and 10-year periods.

The widely diversified portfolio of the

(ACRNX) - Get Report

Columbia Acorn Z fund has kept it in good stead, landing it in or near the top 10% of its peers. Veteran manager Ralph Wanger retired after 33 years of managing the fund, but his departure shouldn't concern investors, Morningstar analyst Emily Hall says. Longtime Co-Manager Chuck McQuaid and an established research team will continue to implement the same strategy of buying fast-growing stocks "on the cheap," Hall says. The fund's 17% weighting in technology stocks didn't prevent it from turning in a 45.7% gain in 2003. The primary drawback to this fund is its super-high minimum initial investment -- $50,000. It was raised to prevent its $10.6 billion asset base from growing even more unwieldy.

A more accessible option is

(HRSCX) - Get Report

Heritage Small Cap Stock fund. Managers Bert Boksen and Jim Awad "regularly reject companies that aren't at least close to profitability," according to Morningstar analyst Dan McNeela. That means a lot of smaller technology ventures that trade on momentum, rather than earnings, get left out of this portfolio. But while the fund lags its more technology-oriented peers (falling in the bottom half of its category for 2003), it turned in a more-than-respectable return of 40% in 2003. Both managers look for growth trends outside of technology, such as Boksen's bets on the growing adult education market. Top holdings include

John Wiley & Sons

(JWA)

,

Capital Crossing Bank

(CAPX)

and

Ruby Tuesday

( RI).

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