Given the wild ride technology stocks have been on in recent weeks, it might seem like the wrong time to launch a technology fund. But for the latest entry into the technology fund arena, Pioneer Investment Management's Pioneer Science & Technology Fund, the volatility has created some opportunities.
Pioneer, while the latest, is one of only several companies launching technology funds this year. Strong, Investec Guinness Flight, and State Street Research are some of the other firms that have launched technology funds this year or will do so. While the conditions in the technology market have been less than perfect, the managers of these new funds plan to weather the storm and are looking ahead to better days.
One of the managers of the Pioneer fund, Thomas Crowley, believes this is just the beginning of a major growth cycle for technology that will continue for years.
"We think it's a great time to start, and with the volatility over the last six or seven days, it's been an even better time than we thought," Mr. Crowley said.
The fund was launched April 3, the day the Nasdaq plunged 348 points and the day before one of the market's wildest days ever, when the Nasdaq dropped 13.6% before recovering and finishing the day down just 1.7%. As a result, prices dropped, some dramatically, and the management team of Mr. Crowley, Robert Junkin and Kenneth Fuller found some good deals.
Because of the low prices caused by the volatility, the team picked up five to seven stocks that weren't on its original list. The portfolio holds roughly 60 names.
"The way we're managing right now is we're saving a little cash for the end of the day in case there's a big selloff and we can pick up stocks at a cheaper price," said Mr. Crowley.
Mr. Junkin said good opportunities also were found in selloffs of companies the trio liked in the first place. "We got the opportunity to step in. It was a good time to initiate the position."
The Science & Technology Fund is the first technology offering from Boston-based Pioneer, which has $23 billion in assets under management, of which $43 million is for institutional clients. Mr. Crowley said the move into technology is part of the firm's effort to broaden its lineup to include more growth-oriented products. While later to jump on the technology bandwagon than others, Mr. Crowley believes technology is still in its early stages of growth. Mr. Crowley said the fund is different from other technology funds in that it focuses more on the technology than momentum. "We have a lot of technical, hands-on experience," said Mr. Crowley, who was an electrical engineer for 10 years. "We're trying to determine where technology is going to be 12 months out, and invest now before the market recognizes these trends."
Some of the areas on which the team is focusing are semiconductors, broadband, computer and Internet infrastructure companies, and wireless communications, said Mr. Junkin.
A wireless world
The Pioneer fund is the most recent technology fund to hit the market, but several others have been launched already this year, and more are waiting in the wings.
Another newcomer, the Investec Guinness Flight Wireless World Fund, launched Feb. 28, is the first fund to invest primarily in stocks of companies that have a substantial business interest in wireless communications. It has about 30 holdings, about 90% of which are wireless-related.
While the performance of the fund has suffered the first month, James Atkinson, head of U.S. operations at Investec Guinness Flight Global Asset Management, Pasadena, Calif., said the cash inflows have been steady.
He believes people see the fund as a long-term investment opportunity. "The belief is that everything is going to move to one hand-held device, and that hand-held device will deliver a lot of services," including the Internet, said Mr. Atkinson.
The World Wireless Fund looks to invest in those companies that will move along with the shift to wireless, said Mr. Atkinson. Right now the fund is invested in telecommunications companies that provide wireless infrastructure like Nokia Corp. and Ericsson Telephone ADR, but over time he sees companies from a variety of sectors -- such as transportation and financial services -- participating in wireless.
The wireless wave
One of the companies the fund invests in is Merita-Nordbanken Group, a Finnish company that has developed a pilot project that would allow people to use a cell phone, or hand-held device, as a credit card. "The world's going to change dramatically in the next few years, and there's going to be companies outside the industry who are going to move their services quickly to this sort of environment," said Mr. Atkinson. "We are with wireless where Internet was two years ago."
Wireless companies have not been immune to the volatility in March and April -- the fund is down about 5% since its inception. But Mr. Atkinson said he's not concerned thus far. "What's really going to matter is what's going on 18 months from now."
Despite the volatility, the flows have remained steady for technology funds. According to TrimTabs.com Investment Research, Santa Rosa, Calif., 3% of equity mutual fund assets flowed into technology funds in March, down from 3.8% in February, but still up from 2.9% in January. So far in April, technology fund flows remain at 3%.
"Long-term investors shouldn't be rattled by it (the volatility)," said Rob Joseph, equity analyst for State Street Research Investment Service Inc., Boston. "Quite frankly we've been a little overdue for this. The technology market has had a tremendous period of performance," he added, saying there hasn't been a significant correction since October 1998. "It's a healthy thing for the market."
State Street Research, with $54 billion in assets under management -- of which $35 billion is for institutional clients -- also will be launching its first technology fund -- probably in the third quarter.
Strong Capital Management, Menomonee Falls, Wis., is another firm that entered the technology fund market this year. In January, the firm launched its first two technology funds, the Strong Internet Fund, managed by James Houlton, and the Strong Technology 100 Fund, managed by Derek Felske. In addition, the firm is registering a second tech-oriented fund, the Strong Global Technology Fund. Strong manages $42 billion in assets, including $4.8 billion for institutional clients.
Strong spokeswoman Melissa Murphy said the move toward technology stems from demand by investors.