Q & A: RON ELIZAH: "THE CORRECTION IS OVER AND I’M STARTING TO CLIMB BACK OUT"

Listening to Ron Elijah spout facts about gigabytes, CPUs and RAM chips, you’d think he was the class geek. But the manager of the Robertson Stephens Value + Growth and Information Age funds avoided science in college.

It wasn’t until he joined Montgomery Securities as a research associate at age 29 that he was thrust headlong into technology.

No one did a better job riding the tech stock wave in 1994 than Mr. Elijah. But the once mighty fund wiped out when he failed to move money out of semiconductors in late 1995. Value + Growth saw its $1.4 billion in assets halve, as the fund sank and investors cashed out.

Now one of the industry’s leading technology stock investors is taking some chips off the table. Mr. Elijah, known for turning over his portfolio, slashed technology to 35% from 52% after October’s blue Monday and increased holdings in retail and financial services.

His next move may be into transportation stocks.

Q Were you pleased with how your funds did in 1997?

A I buy growth and I buy tech and they go down in a correction. And they went down. I’m happy I’m still up for the year. And I do think the correction is over and I’m starting to climb back out.

Q You also saw some rocky times in 1995 and 1996. What happened?

A In ’94, I was up 23% and the market was up 1%. I concentrate on groups. If I do it right, I should be able to beat the market, but the market is a tough thing to beat.

I put some into tech and it worked.In early 1995, and through most of ’95, I left the concentration the same. And there was quite a concentration in semiconductors. It’s a cyclical business and we were probably into the fourth or fifth year of the upturn.

In the fourth quarter of 1995, the industry started to go into a downturn and I didn’t recognize it was a downturn until April of ’96.

Q So what happened next?

A I finally got out of the semiconductor industry, but I got back in it later in the year when I sensed we had passed through.

There was still a demand for PCs; there was just an ov
ersupply of semiconductors.

The biggest beneficiaries are going to be PC companies. So I bought Dell and Compaq and had my performance in the second half of the year.

Q How do you think investors see your fund now?

A It’s not the hot new fund it was. I’ve got a five-year secure history. I actually had a downturn and came out of it, which is tough to get through. I had people who wouldn’t invest with me because they didn’t think I was ever challenged. They were right: You have to be challenged.

Q How will the recent problems in Asia affect the technology sector?

A The big technology companies like Intel, Compaq and Microsoft get 40 to 50% of their revenues outside the U.S. Southeast Asia, including Japan, has got to be 20% of the technology buying.

There may be some change in the growth that these companies experience, but it’s going to be very small because a lot of their product is re-exported to Europe or the U.S. anyway. Those countries are basically manufacturing bases for U.S. and European companies.

There may be a temporary stalling, but I don’t think it’s going to change the growth prospects of that area.

Q Describe the fund’s strategy.

A I’m a strong believer in a rising-tide effect. I really believe that you buy an industry first, then you buy a company within the industry. So if I can find a good industry with good growth prospects, that’s No. 1. That’s the best way to start out.

Q How do you develop your themes?

A Demographics is a great beginning because this country is aging.

The first baby boomer just turned 50. You reach your peak earnings years between 45 and 54. You can see the whole P&L on a household and you look down at all expenditures and guess what, retailing also goes up significantly in that age bracket, for both men and women.

Where does somebody in that age bracket shop? Nordstrom, Dayton Hudson.

Q How did you choose transportation as your latest theme?

A I own Dell. It’s the transportation system that’s allowed them to get the inventory there on time quic
kly, then turn around and build a computer and get it out to me, the consumer.

I’ve got FedEx right now and I’m doing more work on it.

When I move some of my assets – and I would like it to be 5% to 10% of my portfolio – I’d like to make sure I feel very comfortable with it, that I’m not just creating a buy scenario in my head.