Mr. Oristaglio said this new emphasis has led the firm's large-cap growth team to revert to investing more in established growth companies such as Coca-Cola Inc. and International Business Machines Corp., and less in technology companies, although he declined to give weightings. "We've gone back to looking for growth companies that are able to consistently deliver above-average returns in the large-cap space. It is a more mature market," Mr. Oristaglio said.
Some of the valuation formulas that have become especially important in Putnam's new portfolio management system are return on invested capital, price-to-book value, price-to-average-sector-price, and an in-depth analysis of a company's ability to grow without needing to raise large amounts of debt.
Mr. Oristaglio noted portfolio managers are looking at qualitative factors as well, especially in light of the corporate accounting scandals at companies such as Enron Corp., Tyco International Ltd. and WorldCom Inc. He said that two years ago, Putnam hired former government officials, including ex-CIA agents, to assist it in conducting qualitative research on corporate governance and accounting — a move that has become popular among many money managers. "We've basically moved that capability in-house to our own analysts," he said.
RCM's performance also stumbled after 2000, with its U.S. Large-Cap Select Growth strategy posting a three-year return of -5.41%, according to data compiled by Effron-PSN, White Plains, N.Y. Since 2000, the firm has lost large-cap growth institutional clients such as the $45 billion Boeing Co. pension fund and the $26 billion DaimlerChrysler Corp.'s pension fund.
Seth Reicher, co-CIO of large-cap growth equities, said RCM officials have directed renewed attention to qualitative research and continue to focus on fundamental quantitative analysis factors of stocks.
"You're seeing the benefits of (qualitative research) more and more. If you look at the sell side, you see them dedicating more and more resources" to qualitative research.
On the quantitative research side, RCM is primarily focusing on a company's cash flow. "With cash flow, you can't really hide anything," he said. RCM managed $17.2 billion in large-cap growth assets as of Dec. 31, according to P&I's May 31 money manager directory.
But at least one of the giants of the late '90s still believes in the power of technology.
Like Putnam, TCW Group in Los Angeles was one of the dominant large-cap growth managers in the late 1990s, but it has been hampered by underperformance since 2000.
In 1999, the TCW Large-Cap Growth institutional strategy notched a net-of-fees return of 56.22%, compared with a 33.6% return for its benchmark, the Russell 1000 Growth index. Since then, however, performance has plummeted. In 2000, the firm's large-cap growth strategy produced a net-of-fees return of -24.29%; in 2001, it returned -31.23%; and in 2002, it returned -30.46%. In those years, the Russell benchmark returned -22.42%, -20.42% and -27.88%, according to figures provided by TCW.
Wendy Barker, senior large-cap growth portfolio manager, said TCW still intends to live and die by technology stocks.
The firm's large-cap growth portfolio still maintains a 30% to 35% weighting in technology stocks, although the Russell 1000 Growth index only maintains a 25% weighting and the fall in price of overvalued technology stocks in 2000 was one of the primary causes of the recession between 2000 to 2002.
"We were very bullish in the 1990s on technology and continue to be bullish over the long term," she said. "Companies in general cannot afford to sit back when it comes to technology. Companies need to spend on technology, and it's required for them to maintain a certain level of technology in order to be competitive. Therefore, we continue to be overweight in that sector. … In fact, many of the names we own today are ones that we owned at the peak of the technology boom. We think they are in a better position today than they were four years ago because many of the weaker and overvalued stocks of technology companies have been shaken out and because many of those stocks are less expensive today then they were back then."
Ms. Barker, who manages about $2 billion in large-cap growth assets, said the firm is seeking companies with a growth rate that exceeds the PEG ratio of their share prices. "We're looking for companies that are growing at, let's say, 50% and trading at 35 times per earnings."
Ms. Barker said stocks of companies such as Juniper Networks and Cisco Systems Inc. are examples of technology stocks with high growth potential. "Juniper continues to grow," she said. "We estimate its earnings to grow 18% per year over the next three to five years."