Boomer fund manager lowers Internet stock expectations

At least one portfolio manager thinks it is a good time to scale back on Internet stocks right now. Ray Steele, manager of YMG Enterprise fund made a 94% return in the last three months of 1999 (that’s right, it’s not a typo), part of which was due to the Internet stock growth, but would rather do something else with his investors’ money in the coming months. No joke.

Ray is certainly able to crack a joke as well as the next guy but he is very serious when it comes to investing. Apart from managing the YMG Enterprise fund he is also part of the YMG team that manages institutional and pension funds for the firm. In past positions with Goodman & Company and Co-operators Group he has become an expert in Canadian equity investments and Ray believes that the key is to focus on the "boomer" demographic boom that is expected to impact our economy in a large way over the next few years. As "boomers" age towards retirement Ray expects a strong performance for technology, financial services, consumer products, biotechnology and health care stocks.

Ray has a universe of about 500 stocks that he monitors, keeping a close eye on roughly 100 of them, and there is a constant parade of new ideas crossing his path. "I try to keep no more than 40-50 names in my portfolio," he says, "more towards the upper end if I have a lot of small caps, for diversification." Although the fund is classified as a U.S. equity fund, it is not restricted to the U.S. Ray allocates about 50% of the assets in Canada, and hasn’t seen a good reason yet to go outside North America for investments. "There are many good values here," he says, "where I am more familiar with the landscape."

Cautious words from a man who understands that his fund will invariably be volatile by nature. "I’d like to be a buy and hold investor," he says, "but the volatility in the sector doesn't leave me any option." Ray looks for companies that are winners in their niche, with growth potential at a reasonable price. Many companies will be at an earlier stage in their development and that’s where most of the opportunity for growth lies, as Ray experienced first-hand this past quarter.

Ray says that he can still see good value in some wireless communications stocks, particularly the smaller ones. One of his favourites is Sierra Wireless, a component manufacturer for wireless devices like wireless laptops for modems, for example. It’s a Canadian company, well managed and has done extremely well since he bought the stock at $20. "In a lot of the technology areas it almost seems like a war," Ray says referring to the intense competition. "And like in a war, the best place to be is with the arms supplier." Regardless of who wins, Sierra will still supply components to all the combatants.

Another stock Ray likes is Interprovincial Satellite, a Canadian company that provides wireless monitoring for oilrigs. "An oil engineer sitting in his office in Calgary can monitor the performance of his oilrigs across the province from his laptop," Ray explains. It is a great time saving and cost saving service for oil companies and Ray is anxious to see it expand to applications beyond the oil business. The company is relatively new, in its early stage of development and there is not a lot of competition in their niche.

Levi Folk, Richard Webb and Peter Diplaros are Investment.com mutual fund specialists and editors of the Fund Counsel newsletter. They can be reached by e-mail at peterd@hqinvestment.com.