Sun, Jan 05, 2003 - Page 10 News List

Some US mutual funds make headway

LOOKING AHEAD Kopp Emerging Growth had a return of 21.3 percent in the fourth quarter based on its faith in the long-term prospects of some technology companies

By Carole Gould  /  NY TIMES NEWS SERVICE , NEW YORK

For investors in technology, the fourth-quarter rally closed the circle on a very long haul last year, said Steven F. Crowley, 39, left, who manages the US$239 million Kopp Emerging Growth fund with Sally A. Anderson, 60, right, and LeRoy C. Kopp, 68.

PHOTO: NY TIMES

Not many managers of stock mutual funds had a good 2002. Even many of the top-performing funds for the fourth quarter declined sharply for the year.

Managers of three of those funds talked about what drove their returns in the fourth quarter and what they expect for the stock market this year.

For investors in technology, the fourth-quarter rally closed the circle on a very long haul, said Steven F. Crowley, 39, who manages the US$239 million Kopp Emerging Growth fund with Sally A. Anderson, 60, and LeRoy C. Kopp, 68. The fund took fifth place for the quarter with a return of 21.3 percent, but it fell 51.7 percent for the year.

"Investors have swung from thinking in 2000 that technology companies were the ultimate secular growth story to not even believing that they could be cyclical growth stories," Crowley said. "The fourth quarter has demonstrated to some folks that these stocks can go up."

Kopp Emerging Growth holds about 70 stocks with a median market capitalization of about $250 million. Roughly 65 percent of its assets are in technology stocks, compared with 16 percent for the Russell 2000.

The managers adhere to a buy-and-hold philosophy, and the fund's turnover averages 20 percent a year, compared with 129 percent, on average, for small growth funds, according to Morningstar.

Nine of the fund's stocks more than doubled in price in the quarter, Crowley said. Among the biggest winners were Vitesse Semiconductor, which more than tripled. Vitesse supplies high-performance integrated circuits, mostly to systems manufacturers in the fiber optic communications industry.

"We think that much of the value added in the communications hardware business is moving to the chip level," he said. "This stock had been deeply oversold, but investors have realized that the company is solid, and it's a good growth business."

The fund also made money with Vastera, a company in Dulles, Virginia, that develops international trade management software and services. The stock rose 163 percent. "It's another rebound story," Crowley said, adding, "International trade is a bigger and bigger part of the global economy, and the company is continuing to expand its footprint to Latin America in Europe."

Rational Software, up 140 percent, is another long-term growth story, he said. Based in Cupertino, Califoernia, it provides tools to develop and test software by geographically dispersed development teams, Crowley said. IBM announced a cash acquisition of Rational for US$10.50 a share late last year; the transaction is expected to close in the next 30 days, he said.

Crowley looks forward to a better 2003.

"We expect these companies to re-establish themselves as growth stories," he said, "and rebuild their credibility with investors who had largely discarded them."

Technology also drove the returns of the US$114 million Legg Mason Focus Trust. For the quarter, it was in fourth place over all with a return of 21.4 percent, but it declined 9.1 percent for the year.

Its manager, Robert G. Hagstrom, 46, makes big bets on a small number of stocks; the fund holds no more than 20.

"We were willing to add risk when many high-quality technology and telecommunications companies were mercilessly sold off during July and October," he said.

One of his biggest winners was Nokia, the Finnish cell phone giant. Its American depository receipts rose 17 percent in the quarter.

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