The Trouble With Tech Funds

Sat., Feb. 14, 1998

Katherine Burton Bloomberg News

Technology funds are the best performing mutual fund group so far this year. Don’t expect them to keep their lofty position, though, managers say.

That’s because the merger-induced rally that has sent technology funds up an average of 8.6 percent in 1998, according to Lipper Analytical Services Inc., will lose steam as some companies report lower-than-expected earnings due to the economic crisis in Asia, they said.

For the time being, euphoria has set in, with the Morgan Stanley High Tech Index regaining almost all the ground it lost since September.

“Unfortunately, the growth prospects for companies aren’t as good as they were back then,” said Duncan Richardson, manager of the $55 million Eaton Vance Information Age Fund.

Technology shares got a recent boost after Compaq Computer Corp. agreed to buy Digital Equipment Corp. for about $9.2 billion in cash and stock. Computer Associates International Inc. also has offered to buy Computer Sciences Corp. for about $9 billion.

Many technology companies, though, will be hurt by the economic crisis in Asia, at least in the first two quarters of the year, said Curt Rohrman, manager of the USAA Science & Technology Fund.

“A quarter to a half of some technology company profits come from the Far East,” he said.

Managers say they are staying away from companies most affected by the Asian crisis, such as memory-chip makers Micron Technology Inc. and Texas Instruments Inc., which will face stiff competition from Korean chip makers, who will take advantage of the devalued won to export cheaper products.

Managers say they are buying computer service companies and telecommunications equipment makers instead.

In general, technology stocks have been volatile and disappointing performers for the last several years.

No group of funds that invests the bulk of its assets in U.S. stocks performed worse than tech funds in the two-year period ended Dec. 31, Lipper said.

While the Standard & Poor’s 500 Index gained at an annual rate of 27.87 percent in the two-year period, tech stock funds rose at an annual rate of 13.15 percent.

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