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Trigger-happy growth fund managers usually jettison a stock when it falls through the floor. But they're still hanging on to


(CSCO) - Get Cisco Systems Inc. Report


The networking heavyweight, which

surprised no one when it said Wednesday morning that second-quarter earnings would

top analysts' lowered expectations, has been in the crosshairs of the economic slowdown and tech's nuclear winter. The company's shares have lost nearly three-quarters of their value since the

Nasdaq Composite's

peak almost two years ago.

But nearly seven in 10 big-cap growth funds still own Cisco, according to Chicago research house Morningstar. No doubt some portfolio managers are believers, but for many it's just too big a risk not to own the stock, given its presence in benchmark and peer portfolios.

Now, managers who've hung on might start to look savvy rather than just smitten. Observers say Cisco has widened its lead on competitors during the downturn. Moreover, its rosier-than-expected results might point to rising spending on tech and telecom equipment.

"They've been gaining market share on their competitors as companies want to deal with stronger vendors," says Jay Ritter, a Cisco analyst at Morningstar. "Their competitors seem to be struggling, and that creates an opportunity."

Firsthand Funds tech specialist Kevin Landis said Cisco "will end up being, believe it or not, a stronger force within their industry than they were before these troubles hit," in an

interview published here on Monday. He owns shares of the company in his


Technology Value and

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Technology Leaders funds.

And he's far from alone. Even tech sector funds can't match the concentration of Cisco stock in big-cap growth funds, and the company's following among big-cap growth funds hasn't fallen nearly as sharply as its stock: Some 69% held the stock at the start of 2002, down from 85% at the end of 1999.

Rising and Falling at Cisco
Fund managers have ridden its shares to high highs and low lows

Source: Morningstar. Returns through Feb. 5.

While some managers held on because they saw Cisco gaining traction in the downturn, others were no doubt hanging for reasons that had little to do with the company's business prospects.

Given that the stock still represents more than 1% of the

S&P 500

and more than 2.5% of the S&P/Barra Growth Index, benchmarks for many growth funds, it's a risk not to own Cisco. If the stock takes off, growth managers who don't own shares will get dusted by their peers and by these indices -- the yardsticks against which fund managers are compared at bonus time.

"Cisco is always going to be widely owned by growth fund managers because it's a big part of their benchmark," says Scott Cooley, a senior fund analyst at Morningstar. "They might underweight it a bit, but you're making a pretty big bet if you run a growth fund and don't own it."

Another reason for Cisco's staying power is that for many growth managers, it's the only networker they're willing to hold and the last they're willing to sell.

"When diversified fund managers decide they're going to pull money out of an area, they tend to take it from small and mid-cap names. Cisco had that going for them," says Marc Klee, manager of the


John Hancock Technology fund and co-manager of the


John Hancock Growth Trends fund, which both count Cisco among their top 10 holdings. "Managers looking to keep exposure to the area may have swapped into Cisco from the Junipers, Cienas, Nortels and Lucents."

It sure looks that way. At one point near the Nasdaq's peak,

JDS Uniphase



Lucent Technologies

(LU) - Get Lufax Holding Ltd American Depositary Shares two of which representing one Report

were held by more than half the big-cap growth funds out there, but at the start of this month, just 24% of those funds held JDS Uniphase and just 9% owned Lucent. While Cisco's fall has been precipitous, competitors such as these, as well as

Juniper Networks

(JNPR) - Get Juniper Networks Inc. Report



(CIEN) - Get Ciena Corporation Report


Nortel Networks


, have fallen far further and exited growth funds far quicker.

Of course, not every fund manager has calmly clung to a sagging Cisco stake.

"We're out of it," said


Transamerica Premier Equity fund manager Jeff Van Harte in an

interview posted here two weeks ago. "Things got much worse for them than anyone would have anticipated. I look at Cisco and think it doesn't deserve the multiple it used to have because it's cyclical, and it's still questionable as to what their real competitive position is."

And bargain-hunting value fund managers aren't biting, by and large. More than 80% of big-cap value funds don't own shares today, just as they didn't before the stock's collapse.

The bottom line is that growth fund managers have given Cisco the benefit of the doubt with our money. Now we'll find out if Cisco deserves it.

Ian McDonald writes daily for 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, but he cannot give specific financial advice.