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March 05, 2004 at 07:00 PM
Feb. 26, 2004 — Waddell & Reed Advisors Science & Tech/A (UNSCX) seeks to capitalize on scientific and technological innovations while avoiding market overreactions to those changes. “We look for companies that are changing and are being changed by new sciences and new technologies,” said manager Zachary Shafran.
To avoid market overreactions, the fund focuses on science, as well as technology, to diversify beyond a strictly tech concentration. The fund is also willing to have a sizable cash position. In addition, the $2.1-billion portfolio gains stability with a median market cap of $6.4 billion, larger than many tech funds.
These strategies and characteristics have helped moderate the fund’s volatility. The portfolio’s standard deviation of 18.29% trails the 41.90% average for technology funds, owing in part to the broader definition of technology.
Shafran says moderating volatility, particularly through a dual science and tech focus, is a key reason for the fund’s long-term returns: It is the second-best performing technology fund for the ten years through January. Over that period, the fund rose 16.8%, on average, trailing Select Electronics (FSELX), which had a 19.4% gain. Technology funds were up 10.6% for that time, while the S&P 500-stock index rose 10.9%. Sizable cash stakes in 2000, 2001, and 2002, helped the fund outperform, according to Shafran, who took over the fund in February, 2001.
This emphasis on cash, however, recently lessened the fund’s returns. For the one-year period through January, the fund was up 41.2%, versus a 63.2% gain for the average tech fund. In 2003, the fund’s cash stake was about 23%.
Historically, the fund has focused on information technology and health care because of the growth potential, and because companies in those industries “can regularly reinvent themselves,” Shafran said. The fund’s sector positions currently are about 65% in technology, and about 35% in health care. The manager likes information technology because of increased capital spending, and health care because of demographic changes.
