For the patient and the brave, technology funds hold rewards

MUTUAL FUNDS

December 06, 1992|By WERNER RENBERG

When T. Rowe Price's Science & Technology Fund observed its fifth anniversary Sept. 30, the Baltimore firm had cause to celebrate.

The fund's 14.6 percent average rate of total return -- well ahead of the Standard & Poor's 500's 9 percent -- had made it the leading performer of the 16 science and technology funds in operation for the five years ending that day.

In fact, it ranked 31st among all 1,183 mutual funds tracked by Lipper Analytical Services for the period.

But the celebration was restrained because the fund was down -- along with all but four others in the group -- for the first nine months of 1992. Most were down more than the Price fund's 2.6 percent drop.

Less than two months later, the Price fund's year-to-date return had become a positive 11.0 percent. Thanks to the hot performance of computer software and other technology issues, had suddenly picked up momentum. So had its peers, led by Fidelity Select Software and Computer Services, which was up 32.5 percent through Nov. 25.

If the recent returns of science and technology funds -- and their No. 2 ranking among equity fund groups for 1992 performance (behind financial services) -- have tempted you to invest in one, bear in mind the riskiness that characterizes most of them.

Even if they could maintain the October-November pace for a while longer as economic recovery takes hold, they'd only be suitable for part of your portfolio if you are able and willing to be in funds concentrated in securities as volatile as technology stocks.

Talk about volatility! The Price fund's shareholders have experienced it almost from the start. Less than four weeks after its shares were offered at the initial net asset value of $10, the NAV was knocked down to $6.36 in the wake of the October 1987 crash.

"People who stayed in the fund regained all of that [by May 5, 1989] and then some," James S. Riepe, president of T. Rowe Price Investment Services, points out.

Portfolio manager Charles A. Morris, a former technology analyst, echoes the importance of patience. He chooses stocks that he )) believes he'll want to hold for 18 to 36 months, he says. Because of the "fairly significant swings" in technology issues, he adds, those considering his fund should plan to be invested at least as long.

Mr. Morris has focused on four major themes since succeeding Roger McNamee, with whom he had worked, in October 1991. They are:

* "Cheap" computing. Companies that sell substitutes for IBM software, such as Informix and Oracle, or hardware, such as Sun Microsystems, to help clients with accounting, inventory tracking and other "mission critical applications." They're cashing in on a trend that Mr. Morris believes is just getting started.

* Portable computers. Cellular and other companies making pocket-size devices that are used for keeping schedule information, sending or receiving fax transmissions and other applications.

* Networking. Companies such as cisco Systems and SynOptics that make devices to hook computers together, helping users to enhance logistics control and improve productivity.

* Health care. He has been establishing positions in firms that sell products or services to contain medical costs and picking up select biotechnology companies like Amgen.

Dan Leonard, who has managed Financial Funds' Strategic Technology Portfolio since 1985, is invested in about 70 companies. About 30 percent of his assets is devoted to electronics and software companies. The rest is spread widely among companies involved in a variety of technologies that range from personal computer components and lasers to water desalinization and lottery equipment.

In his first year as manager of Fidelity Select Software and Computer Services, Arieh Coll, of course, had to concentrate his portfolio in only a couple of technology sectors. He focused on software applications for personal computers, computer networking and telephones. Among his major holdings: Microsoft, cisco, Informix.

Mr. Coll says he achieved his 1992 performance in part by placing big bets on his stock picks. Each of at least three of his positions exceeds 5 percent of the fund's assets. "If you do your homework, why buy a little? Buy a lot."

Not all managers had hot hands this year.

Franklin DynaTech Fund's performance was adversely affected by the decline in health care stocks and IBM. It has sold the last of its IBM shares, which it had held since the early 1970s.

John Hancock Freedom National Aviation & Technology Fund, a 64-year-old fund for which Hancock became investment adviser

a year ago, has suffered because of weakness in airline and aerospace stocks, which make up half of its assets. Barry Gordon, its manager since 1973, is trying to expand in airlines and other technology areas while trimming aerospace because of defense spending cutbacks.

It isn't easy. "We're running out of aviation companies to invest in," he says. (Current favorites include United and American.)

1992 By WERNER RENBERG

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