Paul Wick is an old hand when it comes to tech investing. The veteran investor has navigated both shallow water and open sea in the tech industry for more than 30 years, a tenure that encompasses the dotcom bubble in the late 1990s, its bursting in the early 2000s, and the financial crisis in 2008. His success has earned him admiration from peers, and an enviable track record. The Columbia Seligman Technology and Information Fund (CCIZX) , which he started managing in 1990 when it was known as the Seligman Communications and Information Fund, is in the top quartile of funds in its category over the past 3-, 5- and 10 years, according to Morningstar. But Wick didn’t set out to be a technology investor when he started his investment career. When he landed at J & W Seligman & Co. fresh out of Duke in 1987, he was a high yield debt and credit analyst, and soon took over the firm’s junk bond fund when the former manager left. According to Wick, that fund, the Seligman High Yield Bond fund, was a top quintile performer in 1989 — just as the junk bond market, Drexel Burnham and Michael Milken were crashing. So when a position opened up at the Seligman Communications and Information fund, the firm’s then-chief investment officer asked Wick to take it over. Wick spent two weeks with the prior portfolio manager to get a briefing. “I didn’t know anything about technology. I do not have a background in technology. I avoided STEM subjects when I was in college,” as both an undergrad and then a grad student at Duke’s Fuqua School of Business, Wick said. “I’m a finance guy, and I had to come up to speed very quickly on the tech and media industries.” Wick has been with what is today Seligman Investments/Columbia Threadneedle ever since, moving to Silicon Valley from the New York office in 1998. ( Ameriprise Financial bought Seligman in 2008). Today, the Columbia Seligman Technology and Information fund (CCIZX) that Wick began running on New Year’s Day in 1990, has $8.5 billion in assets under management. ‘Beneficiaries of likely technological changes’ In the years that followed, Wick built up the fund, led Seligman’s foray into venture capital and launched a long-short hedge fund in 2001, always on the prowl for firms capitalizing on leading-edge technologies in the U.S. and abroad. His now 10-person team follows a host of tech sectors, ranging from video and mobile gaming, Internet and advertising, to the semiconductor industry. “We want to invest in companies that are beneficiaries of likely technological changes,” Wick said. “It’s really hard to guess how will the technology industry change in five years. Things change fast. But to a large degree, we can make pretty good educated guesses on how the technology industry will evolve over a one- to two-year period of time.” The Tech and Information fund is up 8% in 2023, and lands in the 14th percentile for all tech funds over the past five years and 12th percentile over the past 10, returning an annual average 13.4% and 18.2%, respectively, according to Morningstar , which rates the fund four stars. The expense ratio is 0.92% and its minimum investment is $2,000. For Wick, the technology companies he’s most interested in boast strong intellectual properties, sport robust profit margins and are well-run businesses with strong management teams. By now, Wick has relationships going back decades in the tech industry. He’s known Synopsys co-CEO Aart de Geus for 31 years, and has invested in the business almost as long. As of January, Synopsys is one of Tech and Information’s top five holdings, accounting for some 3.7% of the portfolio. He also counts Arista Networks co-founder Andy Bechtolsheim, a German electrical engineer known for co-founding Sun Microsystems in 1982, among his friends. More than two thirds of 1% (0.69%) of Wick’s portfolio is in Arista. On the other hand, investments aren’t necessarily forever, so Wick will sell or at least reduce the size of a holding, and move on to another idea, if a stock has run out of meaningful upside and has poor business fundamentals. “We tend to be patient capital, but I’m not going to stick with something that has bad fundamentals, and just lie to myself and say, ‘Oh, I’m a long term investor. I’m going to stick with this loser company forever in the hopes that it turns around,'” he said. Looking past the ‘technology imposters’ Wick praised the correction in tech stocks last year that he said weeded out more speculative growth names. He called companies that merged with SPACs, or risky electric vehicle and charging companies, “technology imposters.” Today, however, the fund manager said he is searching for pockets of opportunity. While tech stocks have rebounded somewhat since the start of the year, he figures there are still companies that are modestly valued, and thinks they can start to outperform as the economy strengthens heading into 2024. One name Wick is raising bets on is Bloom Energy , an alternative energy company with a $4 billion market cap that makes solid oxide fuel cells. The fuel cells run on pure hydrogen or a combination of natural gas and hydrogen, offering businesses a stable source of power while also riding the energy transition to more green technologies. “Let’s say you’re Amazon, and you’re putting in a new data center someplace in a rural area that has cheap electricity, you go ahead and start investigating about putting in this data center and guess what, find that the local utility can’t accommodate the needs of that data center. They literally don’t have enough power for that data center,” Wick said. “But you could go to someone like Bloom, and Bloom can put in its fuel cells and hook them up to a natural gas pipe. And you won’t have these electricity shortages that are bedeviling large parts of the U.S. electrical power grid,” he added. Indeed, Amazon is already a customer of Bloom, as is Google. So is the engineering and construction unit of South Korean conglomerate SK Group. As of January, the Technology and Information fund held 2.96% of its assets in Bloom, up from 2.36% in October. The stock is higher by 5% this year. “We think that Bloom can become a company that can have a 15% pre-tax profit margins in five or six years,” Wick added. He also called out software company Dropbox, a cloud storage company Wick admits is not a “barnburner” for growth. However, the firm, with a $6.9 billion market cap, is well-run, has high margins and is buying back its own stock. Wick, whose fund had 2.4% of it assets in Dropbox as of January, expects it will either be taken private, or continue to buy back its own shares. Dropbox shares are down almost 15% in 2023. A preference for semiconductors Wick has overweighted different parts of tech at various times. Between 2002 and 2010, for example, Technology and Information fund was heavily overweight software after Wick saw the sector’s low valuations and high profit margins. Since 2013, the fund manager has been overweight the chip industry, seeing low valuations as well as likely consolidation. He still finds the industry attractive, and said that the ramp up in spending into hyperscale data centers because of artificial intelligence should boost semiconductor stocks such as Broadcom and Marvell Technology. The two are up 10% and 4.4%, respectively, this year. He also thinks Arista Networks will benefit, as it makes Ethernet switches that will be increasingly used in these data centers. The stock is up almost 21% this year. “We’re very bullish on their growth potential still over the next few years, even though they they’ve been growing at a meteoric pace,” Wick said. Other stocks he mentioned are semiconductor equipment makers Lam Research and Applied Materials, as well as Analog Devices and Fortinet. Lifelong learning Outside of work, Wick, who enjoys playing golf and tennis, said he’s fortunate to have a golf player in his son, and tennis players in his wife and daughter. Over his decades long career, however, Wick said it’s the intellectual stimulation and incredible people he gets to meet that keeps him in the business. “There are a lot of things about the investment business that are profoundly satisfying,” he said. “I’m a big fan of Charlie Munger, who’s Warren Buffett’s right hand man. And Charlie Munger is 99. And he still reads constantly. And it’s obvious if you watch an interview with him, he is just so excited about learning,” Wick said. “And I think being in the investment industry, you’ve got to be learning nonstop and staying abreast of things. Or, you’re not going to be successful. And I’m someone who really enjoys learning and the opportunity to work with great people.”
Source link: https://www.cnbc.com/2023/03/12/where-paul-wick-seasoned-tech-stock-investor-is-raising-his-bets-now.html