Small Fund’s Golden Boys Now Face True Test of Mettle

Ken Kam and Kevin Landis manage a small-stock mutual fund which, the way the world works, probably won’t be small for much longer.

In a business where recent performance counts for everything, the Technology Value Fund managed by Kam and Landis hit the top of the charts in 1996.

The fund rocketed 60.9% for the year, making it the third-best stock fund of the nearly 4,000 tracked by Lipper Analytical Services. More important, Tech Value’s 1996 gain came atop a 61.2% jump in 1995, which makes the $35-million-asset fund by far the best-performing technology stock fund over the last two years.

Kam and Landis, 36 and 35 respectively, frankly expect to get noticed now. And their partner, Steven Witt, isn’t shy about promoting them. In a news release describing Kam and Landis’ stock-picking technique, Witt boldly makes reference to investment legends Warren Buffett and Peter Lynch--indirectly suggesting, it would appear, that Kam and Landis might be headed for the same pantheon.

Well, maybe. But even with two years of fund management under their belts, it’s still a little early to say how much luck has enhanced Kam and Landis’ stock-picking skills.

What’s more, the two are likely to face their greatest challenge soon, if new money rolls into the fund as expected. Plenty of managers have had spectacular short-term records when they ran relatively small sums. The game gets much harder for most when the dollars pour in and the pressure to put the money to work weighs heavy on managers’ shoulders.

In an interview, Kam and Landis are confident but not cocky. They don’t expect to be managing Buffett-like billions any time soon. But neither do they think more money will hurt them, because they say their goal isn’t to trade actively--a style that demands nimbleness--but rather to buy and hold the most promising stocks they can find in medical and general technology.

Buffett, too, is a buy-and-hold investor, Kam and Landis note. “Nobody’s asking him how he’s dealing with a lack of nimbleness,” Kam says wryly.

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Kam and Landis took interesting routes into the fund business, and their experiences, they say, have had a lot to do with their investment success so far.

The two met in 1987 while in business school and found they both shared a passion for the stock market. So they started an investment club with a few other friends.

Over the years, the club continued as a hobby while the two men followed separate career paths. Kam co-founded a company called Novoste Corp., a maker of cardiac catheters, which was bought out by another firm in 1992. Landis, meanwhile, became a semiconductor industry analyst at research firm Dataquest in Silicon Valley, then went to work for a chip company called S-MOS Systems.

In 1993, the two say, they both decided that what they wanted to do for a living was what they enjoyed doing most: investing.

They invited family, friends and their network of tech industry contacts to invest with them. They rounded up $2.5 million in all and launched Tech Value as a private fund. In 1994 they decided to file the miles of necessary paperwork, hire the required auditors and become a true mutual fund.

Despite the fund’s strong performance in 1995, its assets only began to balloon last year, as word got out. The pressure on Kam and Landis until 1996 was largely personal, they say: Given the large number of friends and family in the fund, “if we lost money we knew we couldn’t go home for Christmas,” Kam jokes.

The two say the network of contacts they’ve developed and nurtured over the years--Lam in medical technology, Landis in the semiconductor and computer businesses--has been a huge help in guiding them to the right stocks. It also helps, they say, that they are based in Silicon Valley (in Milpitas); they are apparently the only tech fund managers actually living in the valley.

“Every engineer in this valley has a few hidden spreadsheets, trying to beat the stock market,” Kam says. “It’s not hard to get people here to talk about stocks.”

Their network of industry contacts, both inside and outside the valley, constantly e-mails them with tips on new products, new competitors and general sales trends in the medical tech and general technology businesses, Kam and Landis say. “We must get a couple hundred e-mails a day now,” according to Kam.

The key, of course, is knowing what is useful information and what is unimportant or already known by everyone else in the marketplace. “We think we know how to boil the questions down [about specific companies] and then find the right people to put those questions to,” Kam says.

Their contact network, Landis says, helped lead them to disk drive maker Iomega in the fall of 1995, well before the stock skyrocketed in spring 1996 (at which point they sold, Landis says).

For Kam, the network of doctors he came to know in the cardiac device field helped lead him to up-and-comers like EP Technologies and Heart Technology, both developers of cardiac technologies and both of which were taken over by Boston Scientific.

Currently, the Tech Value fund is heavily oriented toward semiconductor companies, especially specialty-chip makers like Altera and Sierra Semiconductor, which are major suppliers to the computer networking firms. Landis believes many investors still are underestimating the growth potential of the networking business.

Kam, meanwhile, is excited about such holdings as Mini-Med, which makes an implantable insulin regulator. It is sold overseas but is not yet U.S.-approved.

Their fund’s name, Tech Value, implies that they don’t chase high-valuation stocks. But the two say they don’t shy away from stocks with high price-to-earnings ratios if they feel they have found a winner poised for fast growth.

With their personal money in the fund, Kam and Landis are hoping the new investors they attract will commit as they have--for the long haul. In the hot-money world of tech investing, that may be asking a lot. But stay tuned.

(For more information on the fund, call the toll-free number, [888] 883-3863.)

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Tech Value’s A List

Here are the stocks that were the biggest holdings of Technology Value Fund as of Nov. 29:

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Friday Value of Stock close fund’s holdings* Intel Corp. $138.38 $2,537,500 Lattice Semiconductor 45.13 1,790,000 Sierra Semiconductor 15.75 1,581,250 S3 Inc. 16.38 1,530,000 Altera 77.88 1,510,000 Epic Design Tech 27.13 1,250,000 Opal Inc. 18.50 1,098,750 IKOS 21.50 1,058,750 Advanced Micro Devices 28.00 970,000 Avant Corp. 31.75 936,000

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All stocks trade on Nasdaq except Advanced Micro (NYSE).

* as of Nov. 29. Positions may have changed since then.

Source: Interactive Investments