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By Bridget B. Hughes, CFA | 04-19-2010 03:09 PM

Hagstrom: The One Tech Industry with the Highest Potential

The Legg Mason manager on tech's most promising secular growth trend, interest rates' effect on stock portfolios, and the valuations on high-quality stocks.

Bridget Hughes: Hi. I'm Bridget Hughes with Morningstar, and we are here today with Robert Hagstrom of Legg Mason Capital Management Growth Trust. Robert, thanks for joining us today.

Robert Hagstrom: Bridget, nice to see you.

Hughes: I've read your latest quarterly commentary, and in that you talk about positioning the fund in the high-quality growth stocks that you undertook about a year or so ago. Is that still how the portfolio is positioned?

Hagstrom: Yes. We made the investment in high-quality stocks at the end of '08. It actually worked out relatively well in '09, even though I think the high-quality growth stocks have not yet reset to what we think is fair value. So the fund, yes, is still very much a large-cap, high-quality growth portfolio.

Hughes: Let's talk about interest rates. Most people expect interest rates to increase. Now you talked about your portfolio in terms of duration. Can you explain?

Hagstrom: Well, it's a novel concept. Think about a bond manger. Think about a fixed-income manager. And they think about duration--how many short-term bonds versus long-term bonds.

And when interest rates rise, they all know that they need to shorten their maturity so they are not harmed by the rise in interest rates.

We've looked at the research on how this might affect stock portfolios. There is some good academic research here.

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