The sector isn't just for growth managers.
The tech sector isn't the exclusive domain of growth managers--the S&P
500 sports a 20% stake, after all--but relative to their blend and value
counterparts, it is a favorite growth fishing hole. Growth funds are the biggest
shareholders of bellwethers such as
Apple's recent evolution from R&D-focused cash-hoarder to modest dividend-payer, however, coincides with increased tech exposure among blend and, especially, value funds. Across Morningstar's value categories, the typical fund has allocated roughly 12% of assets to technology companies. That more than doubles the figure from five years ago (5.5%) and comes close to doubling the percentage from 10 years ago (6.1%). The increase has been especially pronounced among small- and large-value funds. For that subset, the five-and 10-year average tech exposures are 3.4% and 4.4%, respectively.
Case in Point
There are many forms of value investing, but for managers who pursue absolute value strategies, any stock can be a bargain, potentially. Provided the gap between the manager's estimate of a firm's intrinsic value and the market's measure of its worth is sufficiently wide, the company can be a portfolio candidate.
That's the tack at Harris Associates, the parent firm behind the Oakmark fund family. The Chicago-based asset manager has a well-earned reputation for value investing, not least because its roster includes Bill Nygren and David Herro. Those two managers have racked up kudos and peer-besting returns with a strategy that permits them to buy bargains wherever they find them. They've also been instrumental in crafting the absolute value approach that Harris has used with remarkable success across the Oakmark lineup. (Four of the firm's seven funds have earned the Morningstar Analyst Rating of Gold, two have earned the Silver rating, and one has earned the Bronze rating.)
At the end of 2012's first quarter, most of Oakmark funds had something else
in common: substantial technology exposure. On the domestic side of the shop's
lineup, Nygren's concentrated
Elsewhere, Nygren's more expansive
Among the firm's international funds, more than 35% of assets at both
Tech Tea Leaves
Oakmark's managers don't invest in the tech sector, per se. They invest in individual firms that meet their stringent fundamental and valuation criteria and let the sector allocations fall where they may. With that in mind, it's telling that Oakmark's purely bottom-up process has recently led to big tech stakes in most of its funds. Connecting the dots between the firm's overarching strategy and its tech exposure may help explain what other like-minded value hounds have been seeing in the tech sector.