Amerindo Does the Internet Its Way--and With a 68% Return
So far this year, three of the four best-performing mutual funds on Wall Street have the word “Internet” or “Net” in their names. The exception: Amerindo Technology (ticker symbol: ATCHX). How has the sole public fund from Amerindo Investment Advisors, veteran managers of emerging-growth stock portfolios, racked up a 68% gain since Jan. 1?
By reinventing itself as--what else?--an Internet fund, and doing it the Amerindo way.
Alberto Vilar, president of the firm, which manages $3 billion, is the dean of investors who specialize in stocks with the greatest promise and highest risk. Based on its portfolios for institutional clients, Amerindo’s results paced the industry in the first half of this decade, stoked by early and aggressive bets on Cisco Systems, Oracle and other developing titans. By and large, Vilar held fast through the ups and downs that tend to shake shares out of less confident hands.
Now Vilar mines the Net for gems. As always, his method--piling into 12 to 20 stocks, typically with high price-to-earnings ratios, in volatile, high-growth sectors, then keeping them for three to five years--accentuates the potential payoff and potential pain.
“We are the bulls of the country on the Internet,” Vilar declares.
He and his associates passionately believe that the Internet will transform economic activity in a manner “comparable to previous revolutions, like the movement from agriculture to an industrial economy,” says Emeric McDonald, a co-manager of the fund.
They estimate that Internet stocks will be worth a combined $2 trillion in a few years. Even if some of the rockets the fund owns, such as Yahoo, EBay, Inktomi and Broadcast.com, sport grandiose valuations by conventional measures, the entire sector is worth only a fraction of Vilar’s benchmark for the future.
Look at it this way, they suggest: The move from mainframe to PC-oriented computing created $1 trillion in stock wealth over 10 to 12 years, and the changes driven by the Net will be bigger and happen faster. For example, Healtheon, a recent addition to the $100-million fund, pitches a Web-based platform for bringing order to the chaotic information systems of the vast medical industry.
Amerindo takes little interest in the debate over the prices of Internet stocks. Corrections are inevitable and more or less irrelevant over the long term, they say.
Instead, they “let the winners run.” That approach stems from the history of monster stocks like Cisco and Microsoft, which were often perceived as overvalued while they were building their dominance, but in retrospect were chronically undervalued.
“You don’t sell these stocks based on value,” Vilar says. “Most people get nervous after a double or a triple [in price], but . . . you need to tolerate that the stocks will get ahead of themselves short-term, and you need to tolerate the 25% corrections so you can capture the growth later.”
The search for the next big winner starts with identifying fields that are likely to undergo exhilarating growth. Then Amerindo sifts for leadership potential among the players, sizing up their strategies, management and balance sheets.
Sometimes Amerindo will buy several contenders in an emerging niche. The fund has prospered with Siebel Systems, for instance, but took hits on Vantive and Remedy, Siebel’s rivals in the young customer-service software industry.
Vilar & Co. cheerfully accept the losers because the outsize growth of the winners makes far more impact on their bottom line, they say. With emerging-growth stocks, a good batting average isn’t as vital as hitting your share of home runs.
One home run created problems along with profits. As the price of Yahoo spiked late last year, the fund’s stake in the Web portal mushroomed to at least 43% of assets. That required Amerindo to do some fancy accounting footwork to retain its mutual fund tax status, which caps the proportion of a single holding at 25%. The managers also sold some shares, but Yahoo still represents almost 30% of the fund, Vilar says.
Nevertheless, Vilar has argued that, in a way, he takes a more diversified approach than Warren Buffett, the blue-chip sage known for making a few big bets.
“Buffett says you spend half your lifetime finding a handful of good stocks, and you spend the other half trying to keep your clients from selling them,” Vilar notes.
Is this any way to run a mutual fund?
Amerindo Technology got off to a weak start after its October 1996 launch, losing 19% in 1997. Since then the fund has come on strong, returning 84.7% in 1998 and booming this year.
Its volatility can be extreme. Last August the fund lost 26%, compared with 19.8% for the average tech fund tracked by Morningstar. In September, it leaped 42%, while the category advanced 12.9%. For all those gyrations, its 81.7% return since inception through March 1 roughly matched that of its peers.
Analyst Scott Cooley of Morningstar calls Amerindo Tech a high-risk fund that offers strong upside potential. “They follow these companies a lot sooner than other managers, which gives them an edge,” he says. “The fact that they have been doing this kind of investing for a long time gives me confidence.”
He cautions, however, that Wall Street has seen many trends that failed to live up to forecasts. “Five years ago, people predicted there would be explosive growth in HMOs. They were right, but those companies have turned out to be lousy stocks.”
But going out on a limb is what Amerindo is paid to do. At the same time, it’s not hard to prophesy that more cash will be flowing into business-to-business electronic commerce, which Amerindo sees as the next stage of the Internet wave.
Co-manager McDonald mentions three favorites that fit into this theme. Vignette, which recently went public, manages content for sites that sell to businesses and consumers; Exodus Communications addresses the need for professional hosting of corporate Web sites; and Ariba Technologies, a private firm in which Amerindo has a stake, automates corporate purchasing via the Internet and private networks. General Motors recently signed on as a customer.
In his two decades at Amerindo’s helm, Vilar has embraced a range of ideas born of the pairing of entrepreneurs and engineers. Now he expects the Internet theme to define tech investing for a long, long time. “Ten years from now, this is where you’ll be,” he says. “Trust me.”
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Times staff writer Edward Silver can be reached via e-mail at edward.silver@latimes.com.
