Big bargains in the tech aisle, says RS Investments' Thacker

The technology sector has gotten cheap, according to Allison Thacker, who manages $1.4 billion in growth portfolios at RS Investments. “Tech is attractive right now compared to its historical valuations, and it is attractive compared to the S&P 500,” said Ms. Thacker, co-manager of the $150 million RS Technology Fund Ticker:(RSIFX). The current price-to-earnings ratio of the UBS Global Technology Index is 14.5, which is 28% below the historical average of 20.2. The historical average was calculated excluding the anomaly of the late-1990s tech bubble, which would have skewed the historical average P/E even higher. The latest valuations reflect an evolving image of a tech sector that learned its lessons during the dot-com bubble. Ms. Thacker said she applies “basic grass-roots fundamental research” to identify the kind of innovation that drives the technology sector. “We’re looking for companies that are gaining market share, have strong management and are growing their margins,” she said. The all-cap fund holds 50 stocks and has an average annual turnover rate of around 120%. The basic objective of the fund is to allocate assets across the hardware, software and Internet subcategories of technology. “Internet services has always had a significant representation in the fund because it’s not as cyclical as the overall tech sector, so it adds some risk management to the process,” Ms. Thacker said. One stock in the Internet category is GSI Commerce Inc. Ticker:(GSIC), a company that manages Internet-based sales transactions for traditional retail stores. “E-commerce is a major trend, and this company provides an outsource solution that allows brick-and-mortar businesses to offer web-based sales,” she said. On the hardware side, Apple Inc. Ticker:(AAPL) has been a longtime position in the fund. “Apple is a rare large-cap company that is also a leader in innovation,” Ms. Thacker explained. Another innovator that she likes is Ancestry.com Inc. Ticker:(ACOM). The company, which went public in November, has invested nearly $100 million in digitizing genealogy records that help subscribers track their ancestry. “They’re creating a new market [by making ancestry records available online],” she said. Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.