Triple-digit returns have led to double-digit cash stakes at
. Should the Silicon Valley shop close its white-hot technology funds?
Firsthand has been taking in $500 million to $1 billion in new cash in each of the last few months and admits that star manager Kevin Landis and his small team are having a hard time putting the cash to work. But there are no plans to turn off the cash faucet any time soon.
Firsthand's mutual fund assets had swelled to $2.9 billion at year-end from just $232 million at the end of 1998, according to Boston fund consultant
For the fund company, the cash avalanche is a happy dilemma, but for investors it can be a worry. After all, tech fund managers are supposed to put money in tech stocks, not keep it in cash. The funds are still performing well, but how long can they keep up the pace with double-digit cash stakes?
The average tech fund has 7.9% of its assets in cash, according to
. But each of Firsthand's five tech funds have cash stakes that are more than double that, including
Technology Innovators, which closed to new investors on Dec. 6.
Firsthand has become a marquee name in tech investing. The firm is probably best known for its flagship
Technology Value fund, which has the best return of all funds over the past five years -- a stunning 1168% through Feb. 10, according to
. Landis, chief investment officer and
darling, manages Value as well as the firm's other four tech funds.
The hefty cash stakes are "purely a reflection of strong inflows" because the funds typically aim to stay fully invested, rather than try to time the market with cash calls, says Steven Witt, a managing director of the fund group.
Witt points out that there are bigger tech funds out there than Firsthand's, and he's right. The $12.2 billion
T.Rowe Price Science & Technology and the $9.5 billion
Alliance Technology dwarf Firsthand's funds. But neither of those funds has double-digit cash positions and each is managed by big firms with more managers and analysts than Firsthand.
The company only has three analysts, according to Witt. Firsthand's Web site lists a total of four investment professionals, including Landis, who is the chief investment officer, and recent hire Ken Pearlman, director of research. With five mutual funds and a hedge fund on his plate, Landis could
use some help.
Pearlman hopes to hire seven or eight more analysts by the end of the year, but in a tight job market, the Silicon Valley fund shop is having a hard time finding help. The firm typically tries to hire managers and analysts with work experience in technical fields -- hence the name Firsthand. They're fishing for candidates that Silicon Valley start-ups routinely woo away with fat options packages.
The company line is that the cash will be put to work opportunistically by Landis and his colleagues, but the fact remains that the funds probably won't be able to chip away at their fat cash holdings until more analysts sign on or inflows ebb. Since the funds' performance hasn't trailed off, the cash positions haven't gotten much attention.
Such steep inflows aren't limited to Firsthand. Last year, the
tech fund shot up a jaw-dropping 135% and investors responded by plowing almost $33 billion into technology mutual funds in 1999, according to Financial Research. The previous record for a calendar year was $4.4 billion.
Janus Global Technology, a year-old fund that posted a 212% 1999 return,
closed to new investors at just shy of $8 billion. Some of the sizzling category's other hot funds could follow suit.
Rumors swirled last week that
Munder Net Net, the largest Internet fund with $7.7 billion, might close. The fund has averaged 102.1% annual returns over the past three years and took in $3.7 billion last year alone -- ranking 14th in sales among all funds, according to Financial Research. But its cash position was just a little over 7% on Jan. 31.
Though Witt says there are no immediate plans to close any Firsthand funds, the most likely to close first would be e-Commerce and Communications, both of which focus on smaller companies. If you own shares in Technology Value or are thinking about investing in Firsthand's other funds, you might want to keep these big cash stakes in mind. Odds are, they'll slow the funds down at some point. If it's any consolation, there are plenty of other tech funds out there to choose.
Today there are 61 tech funds, more than triple the number of choices you had just five years ago.