Science and Tech Funds' Surge
May Slow Down, Managers Say

By RICHARD C. TEN WOLDE
Dow Jones Newswires

NEW YORK -- Science and technology mutual funds have risen from their ashes this year, but whether they can maintain their current climb is far from certain.

After crumbling in the fourth quarter, science and technology funds posted an average return of 9.66% in 1997, according to Lipper Analytical Services Inc. That hurt, because the average fund investing in the Standard & Poor's 500 Index stocks gained 32.6%.

However, science and tech funds have been leaders this year, with the average fund in the sector gaining 15.64%. The stocks in which they invest have soared over the competition and pushed the Nasdaq Composite Index to record levels. The Nasdaq index has risen more than 13% this year, compared with the S&P 500's roughly 8% gain.

Some money managers warn the sector isn't for the faint-hearted, and that the funds' strong climb may be short-lived.

Turbulence Seen

Managers expect the sector to experience continued turbulence this year with potential for the stock market to cool and as the U.S. market is influenced by the economic turmoil in Asia.

"I'm wary of the recent run-up. It could be a head fake," said Paul Meeks, director of technology research for Jurika & Voyles Inc. in Oakland, Calif.

Mr. Meeks also manages the Jurika & Voyles Mini-Cap Fund, a portfolio that invests about 13% of its assets in the technology sector, according to fund-tracker Morningstar Inc. That fund has an annualized gain of 33.90% during the past three years.

Mr. Meeks said that while companies' earnings haven't shown the full brunt of the Asian economic turmoil, the trouble could become evident as firms report first-quarter performance. "I'm not jumping on the bull bandwagon yet," he added.

Manager's View

Though the sector is less likely than the overall market to cool off, said Chip Morris, portfolio manager of the T. Rowe Price Science & Tech Fund, "a lot will depend on the broad market.

"If interest rates stay low and valuations for the broad market stay at high levels compared to the historic norm, the market and the tech stocks should continue up," he added.

That won't necessarily be the case, but managers see some good bets in the technology sector. Mr. Morris said firms designing networking software and providing data services are among the most promising. He has picked First Data Corp. and Electronic Data Systems Corp. to be breadwinners for the $4 billion fund.

Moreover, T. Rowe's Mr. Morris sees promise in Oracle Corp., a maker of database and networking software and the world's second-largest software company. The stock has been pummeled in the past year, but Mr. Morris thinks management will improve profit margins and earnings. "We think management has gotten religion. They have evaluated the religion. We don't know if they will practice the religion," he added.

Mr. Morris has the record to prove he can find values -- his fund has a five-year annualized return of 25.02% -- but his fund only managed a 1.71% gain last year. It has slipped in performance from a sector leader to near the bottom of the group.

While there are picks that still show promise, such as Applied Materials Inc., Mr. Morris is wary of semiconductor manufacturers and firms that provide Internet services, such as Yahoo! Inc.

But Tony Rizza, a managing director at Columbus Circle Investors, Stamford, Conn., sees plenty of promise from semiconductor firms. Columbus Circle, which is a division of Pacific Investment Management Co., runs the $300 million Pimco Innovation Fund. "If you look at chart patterns in the semiconductor group, there aren't many that didn't see a 40% to 60% haircut in their stock price," he said, making them a value now.

Mr. Rizza likes Xilinx Inc. and agrees with Mr. Morris's Applied Materials play. "I don't see those leadership companies getting hurt. They'll still do well," Mr. Rizza said. "As we get a better grasp of the effect of the Asia crisis, I think we will see the market broaden again [to the other tech companies]."