Investors inspired by the recent rally shouldn't fear the technology sector, according to growth fund managers who spoke at the Morningstar Investment Conference in Chicago last week.

"The key to economic growth is economic efficiency," said John Calamos, manager of the ( CVGRX) Calamos Growth fund. "And that leads you to technology."

And with promising signs of an economic turnaround, the technology sector is ready for a turnaround as well. "The stronger you feel about technology," said Larry Puglia, manager of the ( TRBCX) T. Rowe Price Blue Chip Growth fund, "the better you should feel about technology."

Technology companies have suffered along with the economy, and many suffered fatal wounds. But that's the good news. "There was an extended period of time needed to separate the wheat from the chaff in the technology sector," said Blaine Rollins, manager of the ( JANSX) Janus fund. "But there's not much chaff left now. And what's left -- eBay ( EBAY), Amazon ( AMZN), Texas Instruments ( TXN) -- 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 in technology; by the end of the year it was less than 20%. "It was not over a weekend that we decided to underweight technology," Calamos said. "It took us more than a year."

Calamos is ramping up the tech in his fund, but doesn't value it any differently than stocks in other sectors. Rather than using the term "technology" to differentiate Amazon from other retail companies, he'll consider it compared to its bricks-and-mortar competitors. "We value technology companies against other companies in their industry," Calamos said. "You have to know how it would fit into its industry and what the competition is."

Puglia, began adding to his technology stake a year ago. "We have a modest overweight in technology that we began last year," he said, noting that includes a 2% overweight in Cisco Systems ( CSCO). "There are reasonable opportunities in the technology area, but be selective. After the recent run-up, valuations are about right."

In other words, managers are as cautious as individuals should be about getting back into technology. "It's important to realize that secular change can happen more quickly than anyone realizes," Puglia said. His fund once owned a sizeable chunk of Safeway. "Who expected that Wal-Mart ( WMT) would get 20% of the retail food market so quickly?"

Puglia noted it was important to manage such risk with conservative valuations. He won't buy a stock trading at more than a 10% premium to the S&P 500 average, and every pick must have good business models with sustainable cash flows. "We're broadly diversified, with something like 100 names," 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 to improve. "There's a lot to get excited about," Rollins said. "The Fed rate cut and the Bush tax cut will encourage companies to continue spending. And there was a major blowout in advertising last quarter. What companies were willing to spend to advertise was much higher than expected. That means companies want to compete again."

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