You’ve probably heard about Nicholas Applegate Global Technology fund (up 494 percent in 1999), Van Waggoner Emerging Growth fund (up 291 percent in 1999), and PBHG Technology and Communication fund (up 244 percent in 1999). Heroes all. Such stellar performances tend to get noticed. But you may not have heard much about American Century New Opportunities fund. Sadly, although it was the 28th-best performer in 1999 in a fund universe that now numbers over 11,000, and although it returned 148 percent for the year a return most people would find pleasing few people know much about it. I read that as a curious indication of our jaded expectations these days. In fact, the fund, which specializes in small-growth-company investments, ranked in the top 2 percent of its category over the last three years. It also pulled in a top Morningstar ranking of five stars, and then closed to new investors to avoid burying its team of three managers under suffocating tons of new cash. Which is why I went to visit with them. I wondered what it felt like to be managing a portfolio that was 70 percent invested in technology stocks in a market that doesn’t merely beat up disappointments but eviscerates them. Any company that misses a step or loses its manic following can lose a third, a half or more of its value virtually overnight. On the other hand, no price is too high for any stock that receives the market blessing. Listen. Are you nervous? Not particularly, Chris Boyd, John Seitzer and Tom Telford told me in one of American Century’s “war rooms” in Kansas City. The three work as a team managing the fund. “A lot goes back to the way we invest,” Boyd said. “We make a screen of the entire (stock) universe, looking for companies that have a high and accelerating growth rate. Right there we know they will probably do better than most stocks.” He is careful to point out that their method, which is used throughout the firm, emphasizes growth in sales, profits and margins actual operating results. While they are “momentum” investors, they are watching fundamental momentum rather than the momentum in share price and volume that has become popular in recent years. Their method dates back to James E. Stowers Jr., who founded the firm in 1958 and became one of the pioneers of growth stock investing. But these days, how is it possible to follow all that is happening in technology? “All the technical gibberish really can be translated into numerical terms,” Seitzer said. “We don’t need to know how a router works; we only need to know the advantage of the product. The proof is always in the numbers.” Added Boyd: “We don’t try to project (a product, sector or industry). We look at the numbers. Then you start to see new industries emerge.” I asked if they could give a concrete example. “How about cargo pants vs. telecommunications spending?” John Seitzer asked. Starting with their database of companies showing accelerating revenues and earnings, he explained that they asked three basic research questions: Why are sales and earnings accelerating? Is the acceleration sustainable? What are the risks? Cargo pants could enjoy expanding sales, he explained, but they were a fashion item that anyone could produce in an instant. PMC-Sierra, on the other hand, was a chip manufacturer with 70 percent to 80 percent gross margins and 40 percent net profits that built products with a life cycle of three to 10 years for the telecommunications industry. So, will technology always be the focus of their portfolio? “We’re always looking for new names and themes. Then the portfolio will get positioned on what we find,” said Boyd. “But technology is still dominant. We did start to pick up energy services about a year ago, and I have to say that we don’t know where we’ll be in two years. What’s important is the one thing that doesn’t change: Money follows earnings. It did 20 and 30 years ago. It does now. But now the information flow is much quicker. Our challenge is to keep up with the information flow and to always funnel it back into our process.” Savings Advice Question: I am 33 years old, with about $26,000 in a retirement fund. The fund is managed by a state-run deferred compensation program. I contribute $60 a week to this fund. I have my money divided into 40 percent guaranteed funds, with a return of 6 percent, 40 percent in the PBHG Growth fund, and 20 percent in the Janus Twenty fund. I have exactly 13 years to go before I’m eligible to retire. I also have a home mortgage of $54,000 at 7.5 percent, a second mortgage of $10,000 at 13 percent, and my home was recently appraised at $100,000. I have an auto loan at 9.5 percent with a $17,000 balance and a credit card balance of $2,500 at 18 percent. I earn about $60,000 a year. My credit rating is below average. What can I do to improve my current situation and save for the future? T.W., Akron, Ohio Answer: With a little time, research and patience, you can reshuffle your obligations and start saving a larger portion of your income. One example should give you an idea of how powerful some shuffling can be. Your 18 percent credit card debt costs you $450 a year in interest. Assuming you are in the 28 percent tax bracket, you need to pay federal income taxes of $175 on $625 of income before you can pay $450 of non-deductible interest. Knock out the credit card debt, and you’ll be able to put that $625 into your deferred compensation program without missing a dime. You have similar potential in your second mortgage with its 13 percent interest rate. I don’t know where you did your shopping for your current loan, but 13 percent is over the top when it comes to secured lending rates. I suggest a visit to your credit union where you should be able to convert your second mortgage into a home equity credit line at 9 percent to 10 percent and the credit line should be large enough to take out the credit card debt. You can do some research without leaving home. I found by visiting www.banxquote.com, for instance, that the average home equity line of credit in Ohio was 9.5 percent. You can also get information at other sites such as www.quicken.com. Once you’ve paid off the credit card, I suggest that you set up a budget and follow it using Quicken or Microsoft Money. You’ll know where your money is going. When you plan what you spend, you’ll have a better chance at paying your new credit card charges every month. Scott Burns is a columnist for The Dallas Morning News.
PERSONAL FINANCE—In Tech World, Great Fund Returns Can Go Unnoticed