In a surprise, tech stocks jump higher

PHILADELPHIA — Amid market volatility that has shaken the confidence of even the most seasoned investors, one sector continues to shine unexpectedly: technology. The information technology sector of the Standard & Poor’s 500 stock index was up 8.47% year-to-date through July, placing it fifth among the index’s 10 sectors — behind energy (17.10%), materials (12.85%), industrials (10.97%) and telecommunications services (10.30%) — for the same period. The S&P 500 itself returned just 2.61%. A fifth-place showing may not sound like much, but some mutual fund managers think that it suggests that technology has gained momentum. The sector was down 9.71% during year-earlier period, making it the worst-performing sector within the S&P 500. Taking notice Technology’s resurgence has already led to some eyebrow- raising results. For the first six months of this year, the Technology Select Sector SPDR (XLK), an exchange traded fund that holds both tech and telecom stocks in the S&P 500, had the second-best return (27.41%) among the nine SPDR sector ETFs distributed by ALPS Distributors Inc. of Denver. The Materials Select Sector SPDR (XLB) was first, with a gain of 29%. “I think it’s kind of gone under the radar for most people,” Dan Dolan, Garden City, N.Y.-based director of wealth management strategies for ALPS, said about the performance of the tech sector. He predicted, however, that if technology keeps performing well, it won’t go unnoticed for long. Some investment managers have already decided that the time to invest in tech is now. “What we are now starting to see is a number of tech companies showing very strong top- and bottom-line growth,” said Bruce L. Bartlett, director of growth equity investment and a portfolio manager at Lord Abbett & Co. LLC of Jersey City, N.J. But it’s not like the late 1990s, when it seemed as if anything considered a tech company was a sure bet, he said. The markets haven’t returned to those “feverish” times, Mr. Bartlett said. There are certain trends, however, that can point investors to tech stocks that should do well, he added. For example, in the late 1990s, there was “massive” overspending with regard to Internet infrastructure, Mr. Bartlett said. As a result, there has been little such spending over the last few years, but it appears that that may soon change, he said. Increasing Internet traffic and new demands being placed on the Internet with the advent of voice and video services such as YouTube.com mean that companies involved in providing the equipment and services used to make the Internet work smoothly will be in demand, Mr. Bartlett said. Such companies include Cisco Systems Inc. (CSCO) and Juniper Networks Inc. (JNPR), he said. Other companies to watch for are those that are in line to take advantage of new “smart phone” technologies that have lead to the development of products such as the iPhone from Apple Inc. (AAPL) of Cupertino, Calif., Mr. Bartlett said. Apart from Apple, one such company is Research In Motion Ltd. (RIMM) of Waterloo, Ontario, he said. The Canadian company sells the popular BlackBerry devices, including smart phones. There are also market factors that are making virtually all tech companies more attractive to investors, some industry experts said. “Because people have concerns about the ability of companies to borrow, they may find sanctuary in an industry where companies are more liquid and have fewer capital needs,” said John Carey, an executive vice president and portfolio manager of the $1.41 billion Pioneer Equity Income Fund and $7.82 billion Pioneer Fund at Pioneer Investments of Boston. That describes many of the companies in the tech sector, he said. The images of such companies are further enhanced by the fact that many of them have cash on hand and are not leveraged, said Paul J. Rasplicka, a senior portfolio manager with AIM Investment Services Inc. of Houston. Not everyone, however, is so sure technology is poised for a comeback — at least not right now. Hesitant investors The fundamentals underlying many technology stocks are strong, but investors may not be ready to take the plunge after the shellacking they took when tech stocks tumbled in 2000, said Ryan Jacob, chairman and chief investment officer of Jacob Asset Management of New York LLC in Redondo Beach, Calif., adviser to the $89 million Jacob Internet Fund. Performance may have to pick up even more for investors to consider the sector seriously, he said. When that will occur is anyone’s guess, Mr. Jacob said. Investors will be taking a great risk, however, if they don’t allocate at least a portion of their portfolio to tech stocks now rather than later, he said. “Every market goes in cycles,” Mr. Jacob said.