Huge Positions In Technology Stocks Worry Fund Manager

Money managers have been wild about technology stocks lately. But not Peter Anderson, chairman and chief investment officer of IDS Advisory.

While many managers, including Fidelity Magellan Fund’s Jeff Vinik and Edina, Minn.-based Lee Kopp, are so bullish on technology they’ve put huge chunks of their portfolios into the industry, Anderson is cutting back.

He’s responsible for $20 billion in pension fund assets. Until two months ago, technology stocks made up about 16 percent of the domestic large-cap stock portfolio that is part of the pension assets.

But he recently cut that exposure to only 9 percent, or $500 million, in technology - preparation for a 20 percent correction in technology stocks he expects this summer.

In contrast, Vinik, who has been doing well with technology investments for months, continues to be outspoken about his confidence in the sector. He’s invested more than 40 percent of Magellan’s $40 billion in technology.

That’s part of what makes Anderson a little nervous about the industry.

With most growth fund managers heavily invested in technology - some as high as 50 percent - and the nation’s largest fund, Magellan, at over 40 percent, what happens if there’s some bad news, like an earnings shortfall?

Or what if there’s a recession instead of the predicted soft landing in the economy, and consumer buying of PCs slows?

“At the first sign that demand is slowing, investors will head to the door so fast your head will spin,” Anderson predicts.

Despite the consensus view that growing world demand will keep technology humming even if there’s a U.S. downturn, Anderson thinks “stocks will dance to the domestic market.”

Another concern is the low cash position of many mutual funds, which means low buying power. In the worst-case scenario - which Anderson isn’t predicting but says is possible - there could be redemptions by mutual fund shareholders. Lacking cash, the funds would have to sell stocks, pushing stock prices down more.

“Because of low liquidity, the door through which they’ll get out is very narrow,” he said. “If I suddenly see Fidelity come at me with a million shares of Intel, will I be dumb enough to take it?”

Sally Anderson, research director for Kopp Investment Advisors, represents another view - that Magellan, well aware of its power, would be likely to drizzle out shares, not dump them.

She thinks a 20 percent correction in technology is possible, but with more moderate and shorter-term consequences.

Peter Anderson believes the market got ahead of itself and priced in very optimistic assumptions. He expects a market correction of 7 percent to 10 percent this summer, with a 20 percent fall in technology stocks because “they’ve advanced far more than the general market and are more volatile.”

He’s responded by trimming even his favorite stocks. Intel, which had amounted to 5 percent of his large-cap stock portfolio, is down to 3.25 percent. He trimmed Microsoft because it was selling at 30 times 1995 earnings, and eliminated Motorola because he was concerned it might not have the capacity to meet the street’s expectations on earnings growth.

But not all the portfolio managers who report to Anderson are following his example.

David Bayer, who manages the IDS Strategy Aggressive growth fund, says he’s done “some minor trimming,” but is keeping 33 percent of his portfolio in technology because the “environment is as good as I’ve seen during the last 10 years.”

Anderson himself says he’s preparing only for a temporary correction, and continues to see the sector as strong long-term.