Back during the Internet boom of the 1990s, it seemed like investors just couldn't get enough of the "Four Horsemen"—Cisco, EMC, Oracle, and Sun Microsystems. After the boom went bust in 2000, the stocks tanked along with the rest of the technology sector. But with tech investing back in vogue, market watchers have found a new set of the "Four Horsemen": Amazon.com, Apple, Google, and Research in Motion.
One tech lover, however, who doesn't buy into all this hubbub is Noor Kamruddin, who has managed the $204 million Wasatch Global Science & Technology fund since January 2006. Kamruddin says she's far more excited about all the up-and-coming horsemen who still have plenty of room to run. "Right now, I look at the large- cap space, and the stocks there have had quite a run and valuation's overstretched, whereas in the small- cap space valuation is quite reasonable with good growth," she says.
The fund, which holds 110 stocks, has 65 percent of its portfolio in small cap companies that Kamruddin sees as innovative. She's especially interested in companies exploring new technologies in emerging sectors. She points to Intuitive Surgical, a Sunnyvale-based company that designs robotic tools that allow doctors to perform minimally invasive surgery. It has barely penetrated the U.S. market and has even less presence overseas, she says, but thinks the company's "monopolistic" position in its specific area of medical technology will generate big gains down the road. In October, Intuitive reported third-quarter sales of $156.9 million—up 64 percent vs. the year-ago quarter. Its year-to-date stock performance has been 206.4 percent.
So far this year, Wasatch Global Science & Tech is up 18.5 percent, beating the Standard & Poor's 500 index by 13 percentage points. For the past three years, it has notched an average annual return of 19.8 percent, topping the S&P by about 10 points.
But the fund has had a tougher time versus its peers this year, trailing the average technology sector fund by around 2.5 percent, according to fund-tracker Morningstar. (Over the past five years, though, it's beaten its rivals by an average of nearly 2 points a year.) Kamruddin says that these numbers are skewed because of the nature of her fund. "If you look at the holdings of our peers, [their outperformance]is because they're large-cap funds." But over the longer term, she's confident small cap-stocks are the way. Going big, she argues, is a "fool's game."
That's not to say that Wasatch doesn't have any large-cap holdings. About 15 to 20 percent of the fund's assets are in large-cap stocks. The biggest holding at 3.54 percent of asset is América Móvil, the Latin American wireless-network operator that gained fame for helping launch Mexico's Carlos Slim into the position of the world's second-richest man. Its other four top holdings are Weg S.A., Cognizant Technology Solutions, NII Holdings, and Infosys Technologies.
Another stock Kamruddin likes is Power Integrations, a firm that designs energy-efficiency technology for everyday electronic goods. The fervor for that kind of green technology has risen recently—legislation has even been proposed in Congress about requiring power-saving devices. Kamruddin says that the fund was able to buy into Power Integrations before all the recent attention. She hopes to find similar new trends in technology as the fund expands its international reach. Since 2004, the fund's stake in international companies has doubled to 40 percent of assets.