Heady gains in aggressive funds raise questions on holding power
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Mr. Hartwell is not troubled by the severe shakeout in some of the technology stocks. ''I look at companies with revenues between $250 million and $600 million with eight- to 10-year operating histories of growth of earnings,'' he says. ''I then buy into ones that have extraordinary potential for large revenues and earnings.'' He looks to the technology stocks: semiconductors, telecommunications, microcomputers. Among the technology brand names in his funds are Advanced Micro Devices, Intel, Motorola, and Monolithic Memories.Skip to next paragraph
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On the negative side of the technology scale, Hartwell avoids National Semiconductor. ''It is the sort of marginal company that, during every recession , one wonders whether it will survive,'' he says.
In the telecommunications area Hartwell liks Rohm, TIE Communications, and MCI Communications. ''One of the surest rules has been to bet against the phone company,'' he says.
He has also put some money into interest-sensitive stocks. ''I think that interest rates will probably decline 1 or 2 percent over the next month,'' he says. Therefore, he owns the shares of several savings-and-loan institutions, including Golden West, Ahmanson, and Federal Savings & Loan of Tucson.
Another interest-rate-sensitive play in his funds are mobile home manufacturers Fleetwood Enterprises and Coachmen Industries.
Hartwell is not the only aggressive growth fund that is counting on lower interest rates and investing in interest-rate sensitive stocks in the current environment. At Delta Trend Fund, one of the Delaware Group, David Scofield, the fund's portfolio manager, has emphasized a group of very cheap savings-and-loans as well as some home builders.
Mr. Scofield's general strategy was to take high profits in late spring by selling as many high price/earnings technology stocks as he could for tax reasons, he explains. He describes the past few months' activity in the market as a ''massive pullback, particularly in the over-the-counter market. The Apples , the MCIs - the screaming high flyers of the past year - have had a ferocious correction.'' Scofield sees this as a good sign, ''since it eliminates much of the speculative element in the market.''
Since the correction, Delta Trend Fund has been taking positions ''in the quality companies with low p/e's that have gone down with this correction.'' Among Scofield's picks are Dental World, an OTC stock that fell from $5 to $2.50 . ''There was no reason for it,'' he says. ''The volume was very light when it fell.'' He also holds Industrial Resources, a holding company for resources which he says has a shot at a solution for acid rain. And he likes Piezo Electric Products. ''It is down from $3 to $1.50'' because of the correction.
''We have taken advantage of the OTC to double up on some of the positions that could become winners over the next year and a half.''
For investors who are still skeptical about such strategies, it would be wise to study a 10-year record of mutual funds. While other funds may at times show more consistency, growth and aggressive growth funds occupy six of the top 11 spots in mutual fund performance over the past 10 years, according to the Switch Fund Advisory. Among the top ranking: Evergreen; Oppenheimer Special Fund; Twentieth Century Growth; American Capital Pace; American Capital Comstock; and Hartwell Leverage Fund.