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Investment Strategy
Research Process
Portfolio Construction
Sell Discipline
Portfolio Management
The Fund invests principally in companies that RS Investments believes are likely to benefit from the development of the Internet.
In considering small-cap technology companies for the portfolio, we are looking for companies that possess "Fundamental Qualification Criteria". Each stock that goes into the portfolio must posses multiple criteria (typically 3-5). We look for companies which display the following criteria:
- 20% minimum annual revenue growth with an emphasis on companies that have industry/sector leading growth rates.
- Some form of competitive advantage.
- High profitability, or the potential for high profitability.
- Strong, aggressive management teams with solid sales and marketing capabilities.
- The potential to grow large within their sector.
The Technology portfolio is constructed on a stock by stock basis within a broad sectors/industry framework. We break our universe into 10 technology sub-sectors including:
Infrastructure
Internet commerce
Hardware
Telecom/access
Software |
Networking
Hosting/ISP
Media/content
Electronics/Semiconductors
Exchanges/intermediaries |
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We will typically have some stock representation in each sub-sector to achieve broad diversification. How we weight the sub-sectors is more a function of company fundamentals, stocks relative valuations, sector trends, and market enthusiasm for a group. We will not dramatically overweight the portfolio to favor any one sub-sector, as we believe that kind of concentration risk is not prudent in an already volatile asset class.
The 10 technology sub-sectors listed above are dynamic. As technologies change and evolve, new sub-sectors are created and existing sub-sectors lose that "emerging" status where we typically find companies for our portfolio. For example, PC makers have not been in our universe for several years. Infrastructure has developed into a very large sub-sector only in the last two years.
We consider selling a stock when:
- A deterioration of the company growth rate.
- Company fails to meet earnings expectations.
- A stock hits our upside target.
- The valuation exceeds our comfort level.
- Institutional ownership expands.
Stephen J. Bishop (RS) is a co-portfolio manager and an analyst in the RS Growth Group and a principal at RS Investments. He has been co-portfolio manager of RS Technology Fund (formerly The Information Age Fund® since July 2001, of RS Emerging Growth Fund since January 2007, and of RS Select Growth Fund (formerly RS Diversified Growth Fund) since May 2007. He also co-manages related separate accounts. Mr. Bishop joined RS Investments in 1996 as a research analyst, primarily covering the technology sector. Prior to joining the firm, he worked as an analyst in the corporate finance department of Dean Witter Reynolds, Inc. for three years. Mr. Bishop holds a B.A. in economics from the University of Notre Dame and an M.B.A. from Harvard Business School.
Allison K. Thacker (RS) is a co-portfolio manager and an analyst in the RS Growth Group and a vice president at RS Investments. She has been a co-portfolio manager of RS Technology Fund (formerly The Information Age Fund® since April 2003, of RS Emerging Growth Fund since January 2007, and of RS Select Growth Fund (formerly RS Diversified Growth Fund) since May 2007. She also co-manages related separate accounts. Prior to joining RS Investments in 2000 as an analyst covering Internet and consumer discretionary stocks, she worked as a summer associate at Putnam Investments, and, prior to that, she was an analyst in the energy group at Merrill Lynch & Company for two years. Ms. Thacker holds a B.A. in economics from Rice University and an M.B.A. from Harvard Business School.
Investing in small- and mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Funds that concentrate investments in a certain sector may be subject to greater risk than funds that invest more broadly, as companies in that sector may share common characteristics and may react similarly to market developments or other factors affecting their values. Investments in high-technology and Internet-related sectors may be highly volatile. Companies in these sectors operate in markets that are characterized by rapid change, evolving industry standards, frequent new service and product announcements, introductions, enhancements and changing customer demands.
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