One of the areas of the investment world that has been gaining in popularity in the last five years ...
A Tech Fund That Has Staying Power
09/15/2008 12:00 am EST
Russell Kinnel, editor of Morningstar FundInvestor, and analyst Hillary Fazzone find a technology fund that consistently beats its peers.
Allianz RCM Technology (DGTNX) boasts some of the longest-tenured managers in the technology category. Walter Price and Huachen Chen have run this fund together since its late-1995 inception. They have followed tech stocks through several market cycles and have seen how they behave in a variety of market conditions. As a result, they're better equipped than most to navigate this fast-paced sector.
The managers look across the globe to unearth emerging, durable trends within the tech sector and attempt to identify the leading companies within those themes. For example, solar cell manufacturer First Solar (Nasdaq: FSLR) is currently a top holding because the managers believe its global plant growth puts it at the forefront of the alternative energy movement.
Price and Chen's picks fall into three camps. The bulk of assets are devoted to up-and-coming stocks or those that the managers feel have competitive advantages over their peers in high-growth industries. The remaining assets are divided between core blue-chip tech stocks, such as Intel (Nasdaq: INTC) or Cisco (Nasdaq: CSCO), and value plays, such as McAfee (NYSE: MFE), whose new management and low stock price make it a prime candidate for takeover.
Price and Chen are willing to make big bets on their favorite stocks. Although the fund holds roughly 70 stocks, over 50% of its assets are currently devoted to the top ten holdings. Nor do they have qualms about trading frequently: The fund's 209% annual turnover, which is low compared with its historic levels, means that the typical stock stays in the portfolio for less than six months.
Price and Chen take steps to offset company-specific risk. In 2006, they began using options to hedge their bets and reduce volatility, and they're willing to hold cash when opportunities are hard to come by. As a result, the fund's long-term volatility (as measured by ten-year standard deviation) is on par with that of its typical tech category peer.
The fund's recent performance demonstrates its tendency to outperform its peers considerably when tech stocks are doing well and lag them marginally when tech stocks are doing poorly. The fund's 29% gain bested 94% of its peers' last year. The category has seen a performance reversal in 2008, however, and this fund's loss is about five percentage points greater than the average tech fund's 16% drop through August 2008. Its ten-year annualized return through August 2008 trumps that of 93% of its rivals.
Owing to topnotch managers running a proven strategy [and] with skin in the game (Price and Chen have more than $1,000,000 invested in the fund), Allianz RCM Technology is everything you'd want from a tech fund.
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