Most folks wouldn't touch the dot-coms with rubber gloves on, but Matthew Fitzmaurice and his colleagues at Amerindo Investors keep right on stuffing them in their funds.
Fitzmaurice is chief executive of New York-based Amerindo Investment Advisors, a boutique firm that has focused strictly on emerging tech companies since 1980. Amerindo launched the
Amerindo Technology fund in 1996; since then it's earned a reputation as perhaps the riskiest tech fund out there. It gained 249% in 1999 but is about to fall more than 50% for the second-straight calendar year. The firm's
Internet B2B fund, which was launched last year to zero in on the business-to-business corner of the Net, is down more than 50% this year, too.
It would be easy to write off Net stocks and the funds that love them. But both have come alive of late. Amerindo's Tech fund is up more than 40% over the past 90 days, compared with an 11% gain for the
. Are the surviving Net stocks going to take off? Which are Amerindo buying? And does anybody really need a Net fund anyway, let alone a B2B Net fund? Read on.
1. What's the case for investing in tech after such steep losses?
I'd answer this the same now that folks seem to be modestly more interested in technology again as I did when prices were coming in. We are at the very front end of a huge technology adoption cycle.
What we believed, going back to '97 and '98, and what we believe now is that the fundamental drivers of the adoption of next-generation technology -- the Internet -- remain relatively robust. We saw two things converge: the bursting of the
stock price bubble and a recessionary environment in the broader economy. It doesn't matter if you're a tech investor or any other type of investor, when the wind starts blowing in your face, it becomes more difficult to grow revenue and more difficult to grow earnings, and
Talking With: Matthew Fitzmaurice
Position: Chief Executive Officer, Amerindo Investment Advisors
Fund: Amerindo Technology
Assets: $2.3 billion
1-Year Return: -60.3%
5-Year Return: -2.8%
Expense Ratio: 2.13% vs. 1.76% category avg.
Top Holdings: Brocade
Sources: Morningstar. Returns through Dec. 17.
2. What should tech investors expect next year?
Our view is that we saw the bottom in September. What we thought was going to happen and what we articulated when I
spoke to you last was that the
would trade between 1800 to 2200 into the end of the year. I think the only thing that happened differently was Sept. 11, which sent the Nasdaq to new lows around 1470, but we view that as an anomaly. We think by and large it should play out as we thought it would.
You're going to see
the Nasdaq move up next year. Not necessarily a hard spike, but just gradually climbing the wall of worry, where Wall Street analysts continue to be pessimistic and portfolio managers still think stocks have gone too far too fast. That's the kind of sentiment that we would anticipate existing for all of 2002, but the market will move higher.
3. Where are you investing today?
I think about it in two buckets. The first contains more established middle-inning companies, and the second are more emerging tech companies. The middle-inning companies have been public for two to five years, but we think are still in the third or fourth inning of a nine-inning game. So that ilk of company breaks down in three categories: software, telecom infrastructure and Internet commerce.
Source: Morningstar. Returns through Dec. 17.
4. What are some examples of each?
In Internet commerce I'm talking about companies like
. Both are profitable and growing anywhere from 60% to 80% year over year during a difficult economic environment. Everybody's been concerned they were both going to slow.
In eBay's case the domestic business has been really strong and the international business has been exceedingly strong as well. In addition, they've got future growth coming from many categories. The one that's as exciting as any is eBay Motors. It's a company we think has tremendous opportunity going forward. If you were to talk to a brick-and-mortar person two years ago, they would have viewed this as folly. But eBay is looking to do $3 billion in revenues in 2005 and have a billion in free-cash flow. Nobody can laugh at that anymore.
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Expedia is the same type of thing. With these businesses you typically have this euphoria and, then, too many of them that get public. Then you have the washing-out period and the consolidation of the winners. You've seen
Chairman Barry Diller running media businesses for years, and now Expedia is going to be part of
the new name USA Networks plans to adopt. I think these kinds of companies will only get stronger. Over the next three to five years, you're going to see these phenomenal growth rates because we will have gotten through the euphoria period, the washing-out period, and have come out the other end.
What about the software area?
A company like
springs to mind. They're a more established company, but they've been able to remake themselves and focus on the really fast-growing markets through internal software development and acquisition.
5. What about the other bucket -- younger, smaller tech companies?
A company that springs to mind is
Internet operations outsourcer
. Talk about a company that's been forsaken in a tough market. They came public at $6, traded as low as $1.12. Our view has been don't let price
scare you off. If you look at Loudcloud's underlying fundamentals, you've got a company holding its own in a tough environment and getting large, well-established companies to pay them for their recurring revenue for their services.
In the last two or three months, they've seen business pick up. It's still a difficult environment, but they've seen their underlying business return. We think they can sell into an enormous market over the next two to three years, and the stock has acted accordingly. It's gone from $1.12 to more than $4 in three months. That's an enormous return in a short period of time, so would you be selling the stock? We think it shouldn't have traded below $3 and that somewhere between $4 and $6 is where it ought to be trading. Over the next several months, everyone will see the company's 100% growth year over year, recurring revenue model, great margins and less competition since several competitors are now out of business and others like
have filed for bankruptcy.
6. You folks have traditionally been fans of the B2B industry, but it's taken a sound beating. What's your take now?
We continue to think it's going to be an extraordinary opportunity. A company like
has been very successful, notwithstanding the fact that they traded to an absurd level last year. The fundamentals have been extraordinary. The stock this year has been as low as $6, and it's currently above $23. That's a pretty good year. I guess we're as committed to B2B as we've ever been.
What about Ariba (ARBA) , which is down 90% this year?
Ariba is a name that we were associated and that we thought was really terrific. We continue to think that Ariba has a very big opportunity. The position is not as large as it was, though. Sometimes we take a beating and look up and think maybe we are wrong. We pared back and tried to sort it out. We have not abandoned the thought that Ariba has a tremendous opportunity.
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7. What are you avoiding?
We have historically talked very favorably about the telecom-infrastructure optical buildout
theme going back two or three years, and we see it playing out over the next 10 years. Clearly, the service providers buying these products got overfunded. We've seen that play out over the past 12 to 18 months. Although there are smatterings of buy interest in certain areas like metro buildout, one could say that the news on this front has not been terribly positive for the last year, and there's not much evidence that it's getting better. We've continued to see capital expenditures
on communications equipment be reduced, not increased.
As a result, we're not overemphasizing the telecom-optical system companies. We're still interested in companies we've talked about before like
. We still hold positions in those companies, but they're not as big as they were.
8. One company that we spoke about a bit in July is Homestore.com (HOMS) . It's down 85% this year.
I guess this is where Amerindo distinguishes itself. I don't know if this is a good thing or a bad thing. Well, I guess over a period of time we distinguish ourselves in a good way. Homestore is not dissimilar to Ariba or in some respects
AOL Time Warner
. These companies stumble, they fall out of favor, and everybody looks up and says this is not a real business. In some respects that's what's happened with Homestore.com. Our view is that they still have the opportunity to dominate home sales. We think that it's their game to lose, even here. We like this market that they play in, we think they are the dominant player, we like the business model of the company, so we continue to hold Homestore.com.
9. What would you say to folks that have been burned by tech over the last 20 months?
This is not a 20-month game, it's a three- to seven-year game. I believe that when you look at these companies
over a longer time period, you're going to see companies up 10 times from these levels. Obviously, if investors have the opportunity, they ought to take advantage of what we think is a relatively unprecedented downward spike in price in the last 20 months. We think this is a good place to be putting money to work, not taking money off the table.
10. There's been a gush of new, very focused tech and tech-heavy growth funds launched over the past two years, like Net funds and then B2B funds. They've seen huge losses, and many say they're too focused to belong in most fund investors' portfolios. What's your response?
I think everybody has room for the greatest growth curve in terms of investment opportunity that's going to exist over the next 10 years. It just sort of depends on how big of a percentage it's going to be of their total portfolio.
Whether you want to be in a B2B fund or a general tech fund, they're both hypergrowth, and in some respects, they're going to perform accordingly. I don't think you're going to be any worse for wear in a B2B fund. I'm looking at what we hold in our B2B fund vs. our Technology fund, and there's a fair amount of overlap. It's always been our view that we outperform on the way up and underperform on the way down.
So how much of someone's portfolio should be here? We're talking 5% or less, right?
I was going to say somewhere between 5% and 10%. The problem with asking me is that I do it for a living, so it's a bigger number for me. We eat our own cooking, and I was blistered along with everyone else.
Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
firstname.lastname@example.org, but he cannot give specific financial advice.