Huachen Chen and Walter Price Jr. posted a stellar record over 10 years running institutional portfolios before starting San Francisco-based Dresdner RCM Global Technology Fund in 1995. The experience showed: When the little-known $23.3 million retail fund turned three years old in December, Morningstar gave it five stars for relatively high returns at low risk. Chen and Price, who both boast business and engineering degrees, now run a total of $860 million. What stocks do they like? They shared some names with BUSINESS WEEK's Robert Barker:
Q: What clicked for you last year?
Price: The cellular segment. We had a large position in Nokia, for example. And the systems-integrator segment in Europe has worked well for us.... Companies like Merkantildata or TT Tieto, which we've sold. Recently we bought...Sema Group.
Q: What else have you bought this year?
Price: Uniphase and JDS Fitel. Uniphase is the leading independent company that makes active optical components--lasers for communications systems, cable-TV systems. And JDS Fitel is the leading independent company that makes passive [optical] components. It's a Canadian company. [JDS and Uniphase] just [agreed to] merge. We think they're going to become...the Intel of the optics industry.
Chen: We've owned Uniphase in varying amounts for a long time.... And then we were looking for a lower-risk way to get exposed to the optical networking area, which directly participates in the data explosion of the Internet. So we became aware of JDS Fitel, [which] was growing just as fast if not faster. And the stock was trading at a meaningful discount to Uniphase.
Q: Veritas Software is a big holding. Why?
Chen: The dream here is that there is a chance...they could become the dominant operating system software company for data storage.... Almost like what Microsoft Windows is to PCs.
Q: Your portfolio betrays a love of data-storage outfits.
Chen: Absolutely. You see we also own EMC and Network Appliance. That theme has served us very well.
Q: What theme do you see on the horizon?
Price: I'm interested in the Internet as it spreads overseas.... One of the best ways to play it in Europe is the system integrator... in particular, Cambridge Technology Partners [which] has done the best job in getting Web sites up. The other way is through cable companies that are putting in high-speed infrastructure. There is a company we have traded--we don't own it right now--but I would buy it again if the stock declined 20% or so. The parent is United International Holdings and a recent spin-off is United Pan-Europe Communications.