Guests at BW Online's May 16 conference on AOL were Charles A. (Chip) Morris of the T. Rowe Price Science & Technology Fund and BW Senior Writer Jeffrey M. Laderman, the magazine's mutual-fund specialist.
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OnlineHost: Good evening and welcome! Tonight's feature from Business Week Online is a special conference on investing in science and technology -- one of the hottest areas around. Our special guest is Charles A. (Chip) Morris, vice-president of T. Rowe Price Associates and president of the T. Rowe Price Science & Technology Fund. Chip Morris' screen name is ChipSTF.
At 32, Chip Morris is lead portfolio manager for the fund that earlier this year received the highest rating for risk-adjusted total return in Business Week's annual Mutual Fund Scoreboard. Morris graduated summa cum laude from Indiana University with a BS in finance and went on to win an MBA with honors from Stanford. He joined T. Rowe Price in 1987.
With Chip Morris for this conference is Jeffrey M. Laderman (JeffBW), senior writer for Business Week and mutual-fund maven extraordinaire. Jeff, who covers both the stock market and mutual funds for BW, is a graduate of Rutgers and the Columbia Graduate School of Journalism. He has been on the BW staff since 1982.
Jeff is the author of Business Week's Guide to Mutual Funds and the editor behind the annual Mutual Fund Scoreboard. The moderator of the discussion will be Jack Dierdorff (JackBW), consulting editor of Business Week Online. Now, on to the questions you send us via the Interact button.
JackBW: Hi, Chip Morris and Jeff Laderman. Welcome to BW Online.
JeffBW: Thanks
ChipSTF: Hello. It is a pleasure to be here. It is a great opportunity to be a part of this program.
JackBW: Jeff, you have the honor of asking the first question.
JeffBW: Chip, tech stocks have been so hot for so long -- can they go further?
ChipSTF: Good question -- probably the single thought that keeps me awake at night. We believe that over the next 12 to 18 months, tech stocks will perform nicely. It's always the next 3 to 6 months that keeps us on pins and needles.
JackBW: Buuger has a question right out of recent news.
Question: What do you think the implications of a weak dollar, in comparison to the yen, will be for technology stocks?
ChipSTF: The weak U.S. dollar vs. the yen is great news for technology companies. In particular, semiconductor stocks should really benefit as the weak U.S. dollar and strong yen keep the Japanese at an impasse with respect to using price to gain market share.
JeffBW: Chip, tells us how T. Rowe Price Science & Technology is different from other tech funds.
ChipSTF: SciTech has a much broader charter -- we invest in electronic companies, health-care companies, environmental services, data-processing companies, wireless-communications companies, etc. Therefore, we tend never to be the top performer in a short period of time, but we do quite well over a longer -- three- to five-year -- time frame.
JeffBW: You're more diversified, so have less risk?
ChipSTF: Exactly. We hope to mute the vagaries of the sector's cyclicality by maintaining a concentrated portfolio (few names) in a diversified manner.
JackBW: Adglick's question hits right where we are at the moment.
Question: Why did America Online stock fall so dramatically today?
JackBW: Are online services in your tech sights?
ChipSTF: AOL, or "AMER $38," fell like a rock when Microsoft and NBC had a love-in conference call discussing their strategic relationship. During the conference, the NBC exec stated that NBC would pull content off AOL over the next year. I believe that Steve Case [AOL CEO] blew a gasket when he said that, and it would not surprise me for NBC to issue a slight backtrack of that statement.
JeffBW: Is it one of your holdings?
ChipSTF: Science & Technology Fund does own AMER. We bought some more from someone today @ $36.
JackBW: Gump23464 has a general market question.
Question: With the market at an all-time high, isn't it due for a correction. If so, how much of a drop do you expect? This run of good luck can't last forever.
ChipSTF: Good question, Forrest. Technology stocks have corrected by 10% or more (peak to trough) in every year since 1986. Such corrections are not extraordinary for this sector. Given the seasonal pattern of tech stocks and their torrid run since June of 1994, I would not be surprised to see some modest pullback.
JackBW: Jeff, how about your view?
JeffBW: The market's high, but it's getting help from high profitability, low inflation, and falling interest rates. Sooner or later, it will pull back. But it won't be the end of the world.
JackBW: Joy Phul has a sort of follow-up to the AOL news to ask you, Chip.
Question: How much do you have invested in Microsoft?
ChipSTF: We own about 3% to 4% in Microsoft. How can you not own the "gorilla" before Win95?
JeffBW: Do you think it will be a big hit?
ChipSTF: Absolutely. It gives PC users what they should have had in the first place: the Macintosh environment.
JackBW: JBronko poses a seasonal question.
Question: Hi. If I were looking to invest in an S&T fund, should I wait until around September, since S&T funds typically have poor returns in the summer?
ChipSTF: I would strongly suggest you "average in" to your position by buying in tranches. Tech stocks move so sharply that it is quite difficult to time entry and exit.
JeffBW: Not a bad idea, no matter what the season.
ChipSTF: Good point, JeffBW.
JackBW: JCS55021 asks this.
Question: With technology a moving target, isn't one of your ongoing challenges to know when to dump the dogs? High-tech dogs, but dogs nonetheless?
ChipSTF: You raise a good point -- in running a tech fund, one must keep the portfolio current. No matter how much you lose on a stock, if it's a dog, you gotta treat it like "Ol' Yeller."«MDNM»
JackBW: JSchutawie has the next one.
Question: How well do you expect the Sci & Tech Fund to perform in a bear market?
JackBW: Plus, do you expect a bear market?
ChipSTF: Answer to the second question is "no," but I remind everybody that tech stocks have had a correction of 10% or more in each year since 1986, so a pullback should be expected. In a bear market, SciTech should underperform the market. That is just how it will likely go, but our diversification should help vis-a-vis some of my extremely aggressive peers.
JeffBW: Chip, if Win95 gives PC users the Mac, what about Apple as a company?
ChipSTF: At this point, Apple as a stock may be a better bet than Apple as a company. At $10 billion in sales (plus or minus), Apple is not going away, but 90% of the PC world belongs to Microsoft. This will make a secular story difficult to weave for the folks in Cupertino.
JackBW: LESHA B has a question about asset allocation.
Question: What percentage of one's portfolio would you recommend for S&T?
ChipSTF: Depending on age, need for current income, etc, it will vary. I tell my relatives, of whom I often think I have way too many, that 10% to 20% is probably a good amount.
JackBW: GBT36 looks overseas.
Question: What, if any, foreign companies are in SciTech's portfolio?
ChipSTF: SciTech owns 15% in foreign stocks. Nokia, Vodafone, and SAP are the biggies.
JeffBW: Chip, have you had any bombs go off in your portfoliio lately?
ChipSTF: We like to call them "torpedoes," and yes, we were struck broadside in Sybase. We felt the company could hold it together and that scalability would not become the issue it has. We were wrong. Fortunately, Sybase was the first direct hit in a while.
JackBW: StuBevan looks ahead.
Question: Bob Stovall from Wall Street Week is advising a very conservative approach...go to T-bills. He sees a 1987-style crash. But, I see declining interest rates, a weak dollar that will goose earnings for many, and a pretty happy consumer. Your POV?
ChipSTF: Stu, you are not alone in fearing a sharp drop. However, it is important to remember that in 1987 interest rates on the T-bond were 10%. Moreover, as you say, Stu, earnings growth for tech companies is incredibly strong. Also, remember it was 58 years in between crashes, so maybe we are good til 2045?
JackBW: Jeff, you wanted to add?
JeffBW: Bob Stovall is a terrific market analyst, but I disagree with him for more of the same reasons Chip does. It's important to look at what other things people can do with their money. There aren't many good alternatives to stocks in this kind of environment.
ChipSTF: JeffBW, you are quite correct.
JackBW: SDSU Aztec asks this -- to which I would add whether IPOs are for small investors at all.
Question: Any hints on how the small investor can get on the inside track on IPOs?
ChipSTF: Great question, Aztec. As a general rule, remember this: The good IPOs go to folks like me -- institutions -- and some very privileged individuals. For a start however, try opening up a brokerage account at a firm that does many IPOs. I would recommend Alex. Brown, Robertson Stephens, or Montgomery Securities.
JeffBW: I think most investors are better off in a mutual fund that does a good job investing in IPOs.
ChipSTF: Just another hint -- if you can get some of a "hot" IPO, it probably isn't...
JeffBW: Yeah, if you can get it, you don't want it.
JackBW: No 2199 wants the secret of your success.
Question: Recently , your fund was recognized for being the only fund that had beaten the S&P 500 for six straight years. How has a fund such as yours been able to do that? Has it been by virtue of the diversity of the fund -- or by the sector that you track in general?
ChipSTF: Both. The tech sector has been among the best performing sectors. And we have done a good job of always being in the hunt. This is our strategy.
JackBW: KLWalk wants advice for a beginner.
Question: As a beginning investor, why should I be in an S&T fund? I'm currently fully funding a 401(k) and have several growth funds for college education.
ChipSTF: The T. Rowe Price SciTech Fund is really an aggressively managed stock fund with a strong tilt toward science and technology. It is a good idea to have some portion of your 401(k) in such a fund, be it SciTech or a different aggressive product.
JackBW: BobA tosses this question out.
Question: What sectors of science/high tech (or companies, if that's a more appropriate question) do you see as the most innovative right now?
ChipSTF: Excellent question, since we try to look for "tailwinds" in the sector. We highlight six: client/server computing, consumer software, wireless communications, remote/online (not a stretch for you folks), the continuing semiconductor cycle, and cost-effective health care.
JeffBW: Chip, are there any good investment plays left on the Info Hiway, or is it all hype?
ChipSTF: A very timely issue, JeffBW. Absolutely, but be careful, or else you will wind up as roadkill. We like Adobe Systems, Shiva, and Ascend Communications. We also think that AMER will do just fine once Microsoft shows the world what they have.
JackBW: Chip, I'm not sure how far you want to go in answering SShifton here.
Question: What's your favorite issue for the coming month?
ChipSTF: What do you mean by "issue," SShifton?
JackBW: I think favorite stock. Maybe you can answer via what you hold.
ChipSTF: Me highlighting a single stock is like handing you a gun with all six chambers loaded and telling you to play Russian roulette. I am doing you a favor by not telling you.
JackBW: How about biggest holding? Most recent buys?
ChipSTF: Largest holdings in STF are Xilinx, Vodafone, and First Financial Management. Xilinx is a programmable semi company. Vodafone is the McCaw of Europe. FFM is building a franchise in electronic money. All are reasonably priced as well.
JeffBW: Electronic money? Does it exist yet?
ChipSTF: Electronic money exists in the form of credit card transactions and wire transfers. FFM has the No. 1 position in each. They also sleep with the boys in Redmond (Microsoft).
JeffBW: I didn't know we've given it a new name.
JackBW: How about this one from DCStearns?
Question: Considering Sybase's problems, what's your opinion of Oracle?
ChipSTF: Oracle is doing fine, as is Informix. We have owned all three over the past 12 months.
JackBW: The 5 win asks this.
Question: What companies do you believe will be players in the wireless EDI field?
ChipSTF: This area is really just emerging. Very few public companies have any real business. The only real pure play I know of is Proxim, but it is a bit speculative.
JackBW: Bill49er has one on a controversial area.
Question: Chip, what biotech companies with earnings do you like? What about Genentech now?
ChipSTF: My favorites in the biotech area are Amgen, Chiron, and Alza. We also like a more speculative company called Cephalon, which is presenting data on its ALS [Lou Gehrig's disease] drug in early June. GNE is O.K., but I would rather see it pull back a bit. The "new" deal with Roche is not too investor-friendly.
JackBW: Jeff has a question now.
JeffBW: Chip, do you think we are going to see a lot of merger activity in the tech area?
ChipSTF: I believe the pace of M&A activity will increase. In fact, the number of deals has already been rising. Fortunately, good companies will be buying good companies. Areas ripe for consolidation include wide area networking, biotech, and desktop software.
JeffBW: And the not-so-good wither away?
ChipSTF: No, they will be bought as well. But at this point in the tech cycle, it is probably a good idea to stick with quality rather than chasing buyouts of weak players.
JackBW: We've had several questions on this company.
Question: Any thoughts on Motorola? Seems to me like a great long-term play.
JackBW: This will have to be our last question -- time's running out.
ChipSTF: Motorola is definitely a longer-term winner. Its two businesses are wireless and semis. However, at the margin, Motorola is losing some market share to Nokia and Ericsson. We own both in SciTech -- a better buy in the low 50s.
JackBW: Thanks so much, Chip Morris of T. Rowe Price Science & Technology Fund and Jeff Laderman of Business Week. And thanks to the audience, for many more questions than we had time for.
ChipSTF: Thanks again. This was a real treat, Jeff and Jack.
JeffBW: Thanks for giving us your valuable time.
OnlineHost: Thanks to Chip Morris of the T. Rowe Price Science & Technology Fund, BW's Jeff Laderman, and the Business Week Online team for this conference on investing in science and technology.
If you'd like to continue the discussion, we invite you to move to the BW Online Chat Room or to post your comments and questions on the BW Online Message Boards (try Economics & Finance).
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Copyright 1995 by The McGraw-Hill Companies, Inc. All rights reserved.
