One of the top tech-pickers around knows exactly what to do in this imploding Internet market -- even if it is something the frenetic trader rarely practices: sitting still. "We're in the bunker," veteran small-cap money manager
Garrett Van Wagoner
told me before the sector's latest carnage this week. "It's time to get our head down for the next six weeks or so."
Investors who know his recent returns will likely listen. Remember May, when the Internet sector took big hits? Van Wagoner's five funds escaped with scarcely a scratch, and today are still at the top of the charts year-to-date and for the past 12 months, many sporting triple-digit returns. An explosion in Net stocks fueled those numbers in part. But timing proved to be everything in holding onto the gains. The self-described poster boy of small-cap volatility started worrying about an Internet IPO oversupply in late spring and slashed Net holdings from more than a fifth of the firm's total assets to about 5%.
All that selling -- and a flood of fresh money chasing his hot numbers -- means Van Wagoner is sitting on a lot of cash. (Levels in the
Mid-Cap fund top 20%.) For now, that's fine with him. "We're as conservatively postured as we get. ... When I get nervous, I raise cash."
But he is quite bullish about the tech positions that made his cut. He thinks
, which jumped 291% on its first day of trading in June, is poised for great growth. It sells enterprise software to companies doing business-to-business commerce. "Ariba allows organizations to set up reordering everything from pens and pencils to PCs. Cuts waste. Business is fantastic and it has one of our favorite management teams." Van Wagoner got in on the ground floor with Ariba, making a private placement before its IPO, then added to his position after it went public.
Private investments are becoming a bigger part of the San Francisco fund firm's assets. And Van Wagoner predicts that IPOs will also make up more of his holdings -- he expects the percentage of IPOs in his portfolio to go from a third to about a half by the end of the year.
But that doesn't mean the go-go growth manager has stopped buying regular ol' stocks, either. He is a big fan of the health-care sector right now. "Contrary to popular belief, there are good companies with good growth opportunities which are executing business plans," he says. A favorite:
, a regional hospital operator in rural areas. I'm talking about as out-of-the-way as you can get -- like 60 miles from Waco, Texas. "The trouble with this business is the hospitals get caught in a spiral. If they can't get patients, they can't get good doctors, and that means they then can't attract patients. Province Healthcare committed capital, hired some doctors, including specialists, and upgraded facilities. They are starting the cycle in a positive way."
You'll also find more semiconductor stocks in Mid-Cap, which Van Wagoner predicts should start looking a lot more like his other aggressive growth funds. That's because he lost a key analyst, Chris Perras, to
. Van Wagoner has since sold off many of the financial and media names that Perras liked. The mid-cap analyst played an important role in determining buys and position sizes and brought a slightly more diversified feel to the fund. "Being an old dog, I don't want to learn new tricks," Van Wagoner says. "I wasn't familiar and didn't have time to learn new industries."
Scared that makes the fund more volatile? If you're a current or potential investor, don't ever forget that volatility goes hand-in-hand with Garrett Van Wagoner.
His funds, as Van Wagoner himself will tell you, should be reserved only for the most aggressive part of your portfolio. Although he is a disciplined trader who usually sticks with the same strategy regardless of market conditions, he has seen the top of the charts and the bottom of the category many times.
Nearly two years ago, when I first profiled him (and just before he suffered one of the worst years in his career), I asked the following question:
Will the real Garrett Van Wagoner please stand up?
Manager No. 1 (January 1996): Try finding a bigger fund superstar. It's not enough, the financial press fawns, to call him "the next Peter Lynch" -- no, he's "a new living legend," the best thing to happen to mutual funds since 401(k)s.
Just take a look at his record. No question he's No. 1. Before setting up shop on his own, he ran the best-performing U.S. stock fund not just one year, but two years in a row -- a record no one came close to touching. Then more records are broken after he opens his own company -- never before has so much cash flooded a fund in so little time. And investors want his autograph, too.
Manager No. 2 (January 1997): His returns are the talk of the industry, but this time because he's stuck at the bottom of the charts. His 800-number again rings off the hook -- no, not star-struck fans but skittish shareholders looking to yank their money. The financial press turns nasty. Suddenly he is "tarnished," an example of why "you can't chase returns." Forget autographs; investors want his head.
After a very rough end of '97-late '98, Manager No. 1 shows up again -- there's no disputing Van the Man's performance of the past year, and once again, investors are piling in. (Assets growing about a percent a day.)
But add a new side to the manager now -- at least for the next couple of weeks -- one you don't often see: Van Wagoner sitting and waiting.
Hold On or Pay Up (and Eat Your Spinach, Too!)
You know better than anyone that I
it when fund firms hike fees and tell you it's for your own good, a traditional defense of loads and 12b-1s. But in one case, I buy the argument. On several of its funds,
is taking aim at market-timing fund investors by imposing a 2% redemption fee for investments held under 90 days.
Oakmark Select's Bill Nygren believes that these traders recognize a pattern -- when his highly concentrated fund ends the day up, it is usually up again the next day. As traders make quick trades in the hope of taking advantage of this, there is an impact on remaining shareholders. If the manager needs to raise cash for redemptions, the fund may suffer from additional commission and market impact costs, as well as tax consequences.
As an investor in Oakmark Select, I don't want my manager to be forced to sell. Plus, the proceeds from the redemption fee go not to the firm, but back into the fund.
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Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner owned shares of Oakmark Select, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at
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