Brandywine managers have found many choice picks in a traditional growth area.
Six years have passed since the start of the Nasdaq crash, and since then, there has been plenty of talk about how some growth stocks have eased into value territory and vice versa. Even so, it's still natural to associate growth funds with technology stocks. And it does make some sense given that, with innovation in that area as rapid as ever and new types of products liable to spread broadly throughout the population, there's a better chance that a tech firm might achieve high growth rates than companies making more-established products.
That's why it was somewhat surprising that an advisor as closely linked with growth investing as Friess Associates, manager of Brandywine Fund
There was one exception, though: When tech took off in 2003, manager Bill D'Alonzo and his colleagues--who trade often and aren't afraid to make bold shifts--moved belatedly but decisively into the area. However, after a few quarters--and some nice profits--they moved out just as decisively, and again became deeply underweighted versus the typical rival from the mid-growth (Brandywine) and large-growth (Brandywine Blue) categories. At the end of 2004, each fund had only about 10% of its portfolio devoted to software and hardware firms combined, roughly half the amount the typical funds in their categories had in tech at the time.
Now, though, tech is back in both funds. The buying started in earnest in mid-2005; by now Brandywine has fully 32% of assets in tech and Blue has 24%. That's interesting not only for shareholders of those funds but for a broader audience, because these managers have one of the longest and more impressive records in the growth-investing field. What's more, their moves echo those of the global managers we highlighted in a previous column who were increasing their stakes in the United States after a long period of treading very lightly in this country. Several of the most prominent targets of those managers were in the technology area.
The Brandywine team emphasizes that even though broad appearances may imply they're making a call on the tech sector in general, the large increase in the tech weightings--a tripling in Brandywine Fund's case--results much more from individual company decisions. However, they did tell Morningstar analyst Karen Dolan recently that they see some positive industrywide trends that explain why so many companies look appealing now, such as the healthy effects of cost-cutting after the late 1990s tech bubble, and an expected upward trend for business spending. That said, they're not shouting "buy tech"--it's the particular companies they have strong feelings about, for specific reasons.
Not all technology firms excite them, of course. Besides the ones they don't own, there's one in particular they soured on recently: They sold Juniper Networks
So how has all this buying in the tech arena influenced performance so far? Brandywine Fund is beating two thirds of its mid-growth peers over the 12 months through June 14, 2006. Brandywine Blue is beating 85% of its large-growth rivals. Of course, this performance owes to much more than just the tech stocks. Most notably, Brandywine Blue's top holding, Weatherford International
Gregg Wolper is a senior analyst with Morningstar.
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