There is money to be made in times of change. When the old ways of doing business no longer suffice, when new industries are on the rise, a smart investor can hitch his portfolio to a coming star and get rich.
But who has the time to pore through balance sheets, looking for the next IBM? Who has the knowledge to notice a patent that will make a million?
Well, investment managers of the so- called "high technology" mutual funds will usually reply hopefully, "I do." Dedicated to aggressive capital growth, these managers nose through the corporate minor leagues, searching for greenhorn companies that have the potential to go big league.
According to the Investment Company Institute, aggressive-growth mutual funds averaged about a 47 percent return on investments last year. That's considerably better than the 32.6 percent gain for the Standard & Poor's 500 index. Over the last five years, the return on these funds has been 225.3 percent.
Not all aggressive funds specialize in technology. Some deal in gold, and others prefer not to be tainted by the sobriquet "technology," believing it implies a narrow investment base. But there is no doubt that technology stocks, such as computer and cable-TV companies, are becoming the star performers in many mutual-fund portfolios.
"Frankly, all the funds in this performance range are into high technology," says an executive at one high-growth mutual fund.
It is a rapidly growing part of the mutual- fund market. In 1979, aggressive growth funds toted up $87 million in net sales (after deducting redemptions). In 1980, the figure leaped to $668 million.
"We're seeing investors becoming less risk-averse," says John Johnson, chairman of the advisory board at New Horizons Fund.
Some of the funds industry observers say are heavy on high-tech include T. Rowe Price's New Horizon, Security Ultra Fund, 20th Century Growth, the Technology Fund, and Hartwell Leverage. In fact, Hartwell Leverage was the top performer among some 500 funds last year, gaining 93.9 percent, according to the Lipper Analytical Service.
But the first name that rolls off their tongues is always Nautilus, a closed-end fund not on the same list as Hartwell Leverage and the other open-end funds. (Open-end funds buy back their own shares and sell shares continuously; closed-end fund shares are issued at one time, are not redeemed by their sponsors, and are traded on the over-the- counter market or some other market.) The reason is not so much stupendous success as ingenious design; the prospectus for Nautilus, founded in January 1979, called for a portion of its assets to be invested in the venture-capital market. Ten percent of the fund's cash was invested in three companies. One of them was Apple Computer. The rest is history.
Last June a share in Nautilus was selling for $15.50. Then Apple announced plans to go public. By the end of September, the cost of owning a piece of Nautilus had risen to $36 -- a jump of 132.3 percent in three months.
"Without sounding too puffy," says Nautilus vice-president James B. Hawkes, "we have been a spectacular performer."
Mr. Hawkes says his company has no specific guidelines, no sure-fire method for unearthing a promising rookie corporation.
"It's a risky type of investing," he claims. "We look for what we call emerging companies. Usually they're commercializing a new technology, or supplying an industry powered by new technology."
Other high-growth fund managers emphasize that they must see signs of development.
"We must feel earnings and revenues are accelerating," says James Stowers, portfolio manager at 20th Century Growth, another fund that performed well last year (73.3 percent).
Managing an aggressive growth fund with high-technology stocks seems a lot like growing trees from seeds. Many are planted, in the hope that one will grow to maturity.
"All these emerging technologies have provided new business with great opportunity," says Steve Norwitz, an official at T. Rowe Price. "All you have to do is pick a few winners and it pushes your earnings way up."
T. Rowe Price's New Horizons, for instance, owns more than 400,000 shares of Helmerich & Payne, an energy-services company. Its portfolio also includes 125, 000 shares of Intel, a high-flying semiconductor manufacturer, and Cray Research , a small computer company run by an eccentric genius.
High-growth fund executives are not quick, however, to predict that their prospecity will continue. Part of their hesitancy may be attributable to natural reticence. Part of it may also be due to the bad times in the early 1970s when their shares nose-dived in price even faster than the stock market averages.
John Hartwell, president of the Hartwell Leverage Fund, says "1980 was a great time for high-technology stocks, but that's not a long-term thing. If you think they'll do as well next year, you'll probably be disappointed."