results of the past few years,” says Gardner-Walker. “Dollar-cost averaging has come in handy.”
That is, she and her husband Perry, a management consultant, both invest similar amounts at regular intervals. Therefore, Gardner-Walker has bought some shares of her technology fund when tech stocks were high and some when they were low. Over the long term, this approach will lower the average cost-per-share and boost potential gains. As Denita and Perry are both in their 40s, they intend to be long-term investors as they put away money for their 10-year-old son Brandon’s education and their own retirement.
“Technology is certainly one of the more dynamic and innovative parts of the economy,” says Jeffrey Rottinghaus, manager of the T. Rowe Price Global Technology fund (PRGTX) and the T. Rowe Price Developing Technology fund (PRDTX). “A lot of professional investors have a shorter-term horizon. As an individual investor, if you have a mutual fund, you can take a longer-term approach.” That’s precisely the outlook recommended by Wilbert McZeal, a certified financial planner in Los Angeles who is affiliated with AIG Financial Advisors. “I insist that my clients commit to hold their funds for longer than five years,” he says.
So far, dollar-cost-averaging in her specialized tech fund has paid off for Gardner-Walker. With the Science and Technology fund generating average returns of almost 14% for the last 10 years, her holdings in the tech fund are now roughly one-third of her Wadell & Reed portfolio, says Marilyn Broussard, a certified financial planner with Waddell & Reed in Arden Hills, Minnesota. Broussard has advised Gardner-Walker to diversify and shift some funds to the Waddell & Reed Advisors Dividend Income A fund (WDVAX), a large-blend fund that has less than 10% of its assets in technology stocks. “Generally, my clients will have a 5% to 15% allocation to the Science and Technology fund,” says Broussard, “depending on their temperament.”
Going for growth
Of course, a sector fund is a way to get concentrated exposure to technology. But many diversified funds have significant tech holdings as well. For instance, Broussard also recommends the Waddell & Reed Adv Vanguard A fund (UNVGX), which holds a mix of large-cap growth stocks, nearly 38% of which were information technology stocks as of Dec. 31, 2006.
“When I look across the investment landscape, seeking fast-growing, innovative companies with sustainable competitive advantages, I find many in the tech sector,” says Conrad Herrmann, portfolio manager of the Franklin Flex Cap Growth A fund (FKCGX). Herrmann says that his multi-cap growth fund is currently overweight in technology, at about 35% of its assets.
Karen Dolan, a mutual fund analyst at Morningstar, agrees that many investors will be well-served by finding their exposure to technology in a diversified fund rather than in a specialized sector fund. “Most tech funds have high expenses and inexperienced managers,” she notes.
Following the smart money
At present, some managers with outstanding long-term records at diversified funds are putting more technology stocks into their portfolios. “Bill Miller at Legg Mason Value Fund and Bill Nygren