Fund in Focus: Hartford Global Technology Fund

The fund has a median market cap of $8.3 billion, but Simpson is free to invest without regard to market-cap size. “Larger-cap stocks have lower risks, while smaller-cap stocks provide higher growth prospects, although much higher risk,” he noted. “The size of a holding reflects its risk-reward profile, and our conviction in that company.”

Although individual stocks are selected on a purely bottom-up basis, Simpson’s team look at top-down elements to determine which subsectors within tech are posed to outperform or weaken. The fund weathered the difficult climate in 2001 and 2002 with an overweight position in tech services stocks as a defensive measure. “We focused more on risk than reward,” said Simpson.

The fund’s two largest subsectors are currently technology hardware & equipment (37%), and software & services (32%). “In the last three quarters, the software industry, in the aggregate, has posted modest growth in sales, but this still represents a turnaround after three years of double-digit declines,” Simpson explained. “There are reasons to believe the worst is behind us, but much depends on how much the economy recovers.” The managers have been shifting more money into software stocks.

Simpson is particularly bullish on the semiconductor industry, on a top-down basis. “There has been limited capital investment in this business the last few years,” he said. “But amidst an improving economic outlook, a healthier supply-demand picture should emerge for semi and capital equipment companies.” Internet and e-commerce stocks are other areas where Simpson is seeing more opportunities. “Increased online advertising has been quite encouraging,” he noted.

The fund strives for diversification across tech as a risk-control measure, Simpson added. However, no maximum nor minimum constraints are imposed on how much a subsector can represent in the fund. Simpson and his team are quick to pull the plug on a stock, but turnover is not something he worries about. When a stock hits its price target, or the investment premise changes, they will sell. Their goal is to remain fully invested at all times.

Simpson conceded that to sustain high valuations, tech stocks will have to deliver robust earnings growth. “Recovery has been discounted into the prices of tech stocks, and we need follow-through on the fundamentals,” he said. However, he believes earnings growth will be strong over the next several quarters. “For investors, stock selection will be critical,” he added. “The gap between the haves and the have-nots is growing.”