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Talking Technology

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Technology stocks were a good holding in 2007. Tech stocks in the S&P 500 index put up an average gain of 15.5% last year, versus only a 3.5% gain for the “500″ as a whole.

But what will 2008 bring? So far, it’s not been a good year for tech stocks. In the first two months of 2008, tech stocks lost 16%, in effect giving back all their gains from 2007.


Standard & Poor’s Chief Investment Strategist Sam Stovall says investors should have an “underweight” allocation to the tech sector. “We think 2008 enterprise spending growth will decelerate, owing to, in our view, relatively lean budgets,” he says.

However, because of the tech sector’s dominance in the U.S. and world economy, Stovall advises a 14% allocation to technology, which accounts for 15.5% of the S&P 500 index.

The best technology mutual fund portfolio managers know well how to navigate their market. (See table.)

For example, Columbia Technology fund shows up as a top-five performer for both three-year and five-year periods. Portfolio manager Wayne Collette looks for technology opportunities throughout the world, and throughout the large-, mid-, and small-cap space. The top holding in the fund–as of the end of 2007, the most recent period for which this information is available–is Nokia, a foreign stock. Other top holdings include Apple, a large-cap stock, and Equinix, a mid-cap stock. Overall, the average market cap for a holding in this fund is $16 billion, versus $21 billion for technology sector mutual fund peers.

Likewise, Berkshire Focus fund is a top-five performer for both one-year and three-year periods. This concentrated fund holds only 25 to 30 holdings at any one time, with the majority of them in the technology sector. Like Columbia’s Collette, Berkshire Focus fund’s portfolio manager, Malcolm Fobes, searches for opportunities regardless of capitalization or country of domicile. The top three holdings in the fund, as of the end of 2007, are Apple, Research in Motion, and Google.



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