While technology stocks have staged an impressive rally in the last year, Brian Ashford-Russell argues that the best is yet to come. "On a secular basis, valuations are diminishing. But we're in a cyclical upturn," says Ashford-Russell, 44, manager of the $241.5-millionMackenzie Universal World Science & Technology Capital Class and founder-director of London, U.K.-based Polar Capital Partners Ltd.
Still, as someone who has witnessed the extreme lows and highs of the sector, Ashford-Russell notes that "we're not yet at a point in the cycle where you would see the benefits, as you did in the 1990s, of expanding valuations and very rapidly growing earnings." While he tends to be a bottom-up manager, Ashford-Russell employs a top-down perspective to determine secular patterns. "If we see a pick-up in capital spending, we expect to see a technology spending pick-up, too. It's happening now."
It's at the company level, though, that he aims most of his attention. He focuses on companies that have strong management and can generate sustainable earnings growth. At the margin, he looks for companies whose earnings are depressed but may be recovery candidates.
A classic instance is Venture Manufacturing Ltd., a Singapore-based contract manufacturer of computer peripherals. "It is unusual in terms of the quality of the management and strategy," says Ashford-Russell, who has invested in the firm for more than a decade. "They have consistently delivered the goods and produced 20% earnings growth per annum."
Ashford-Russell came to technology investing partly by accident. Born in New York, the son of a British diplomat at the UN, he studied politics, philosophy and economics at Brasenose College at Oxford University. After graduating in 1979 with a bachelor of arts, and travelling for a year, he joined Touche Remnant, a London fund management firm.
He got his feet wet as a trainee Far East fund manager. His break came in 1983 when he began specializing in technology stocks. "My boss at the time was closest to retirement. There was likely to be a gap on that side," he recalls. "But once I got into it, it was difficult not to be fascinated by it. The greatest virtue of technology is its ability to reinvent itself. Out of the ashes of one technology, another one emerges."
At the end of 1984, he began managing TR Global Technology. He continued to run the fund when Touche Remnant was taken over by Societé Générale in 1989. The fund later became known as Henderson Technology, after ownership of the firm reverted to Henderson Investors in 1992.
Inspired by the entrepreneurial spirit of the sector, Ashford-Russell left Henderson in September 2000. In January 2001, he and several other Henderson alumni, including Tim Woolley, set up Polar Capital. Starting with US$600 million in assets, the firm has grown to US$1.9 billion under management, with about US$850 million in technology stocks.
Ashford-Russell has also continued his relationship with Mackenzie Financial Corp. He oversees about 10% of the assets of the $1.8-billionMackenzie Select Managers, an association that started in 1998 when the global equity fund was launched.
One of the original three managers of the former Mackenzie Universal World Science and Technology that was launched in 1996, Ashford-Russell resumed his involvement in late 2002. (In May 2001, the fund was merged into the tax class version.) Initially, Polar Capital assumed the portion managed by Boca Raton, Fla.-based Mackenzie Investment Management Inc., after the firm was sold to Waddell & Reed Inc.
In January 2003, Polar Capital took over the portion run out of Mackenzie's Toronto office. The transition was completed in March, when Polar assumed the portion managed by Henderson Investors.
A collaborative effort prevails at Polar. Woolley focuses on smaller U.S. stocks, while newer team members Ben Rogoff and Craig Mercer focus on U.S. mid- and large-caps and Japanese stocks respectively. Ashford-Russell looks after the fund's geographic allocation, as well as the European and Asian parts of the portfolio.
Cognizant of the sector's volatility, he runs about 120 names in the fund, a number that will decline to about 60-80, once conditions stabilize. Positions are limited to about 2.5%. Turnover is running at about 90% to 120% annually.
From a capitalization standpoint, Ashford-Russell has allocated 30% of the fund to large caps, 50% to mid-caps and the balance to small-caps. Not only are there more valuation anomalies to be found in the small and mid-cap arena, but he expects that the next big wave of innovation will come from smaller companies.
Much of the technology of the 1990s has matured, argues Ashford-Russell. Now, it's a matter of waiting for new technologies to emerge. "It's more likely to come from the smaller companies—over the next three to five years."
