Investors inspired by the recent rally shouldn't fear the technology sector,according to growth fund managers who spoke at the Morningstar InvestmentConference in Chicago last week.
"The key to economic growth is economic efficiency," said John Calamos,manager of the
CalamosGrowth fund. "And that leads you to technology."
And with promising signs of an economic turnaround, the technology sector isready for a turnaround as well. "The stronger you feel about technology,"said Larry Puglia, manager of the
T. Rowe Price Blue Chip Growth fund, "the better youshould feel about technology."
Technology companies have suffered along with the economy, and many sufferedfatal wounds. But that's the good news. "There was an extended period oftime needed to separate the wheat from the chaff in the technology sector,"said Blaine Rollins, manager of the
Janus fund. "But there's not much chaff left now. Andwhat's left --
-- will get all the business.
But (when you're market timing,) timing is everything. Manager Calamos began 2000 with some two-thirds of his portfolio intechnology; by the end of the year it was less than 20%. "It was not over aweekend that we decided to underweight technology," Calamos said. "It tookus more than a year."
Calamos is ramping up the tech in his fund, but doesn't value it anydifferently than stocks in other sectors. Rather than using the term"technology" to differentiate Amazon from other retail companies, he'llconsider it compared to its bricks-and-mortar competitors. "We valuetechnology companies against other companies in their industry," Calamossaid. "You have to know how it would fit into its industry and what thecompetition is."
Puglia, began adding to his technology stake a year ago. "We have a modestoverweight in technology that we began last year," he said, noting thatincludes a 2% overweight in
. "There are reasonableopportunities in the technology area, but be selective. After the recentrun-up, valuations are about right."
In other words, managers are as cautious as individuals should be aboutgetting back into technology. "It's important to realize that secular changecan happen more quickly than anyone realizes," Puglia said. His fund onceowned a sizeable chunk of
. "Who expected that
would get 20%of the retail food market so quickly?"
Puglia noted it was important to manage such risk with conservativevaluations. He won't buy a stock trading at more than a 10% premium to the
average, and every pick must have good business models withsustainable cash flows. "We're broadly diversified, with something like 100names," he said. "But our top 20 holdings amount to about 40% of our assets,so there's still a real willingness to make bets."
And those bets will continue to get bigger as the economy continues toimprove. "There's a lot to get excited about," Rollins said. "The
ratecut and the Bush tax cut will encourage companies to continue spending. Andthere was a major blowout in advertising last quarter. What companies werewilling to spend to advertise was much higher than expected. That meanscompanies want to compete again."