While attending Colby College in the late 1990s, Ken Allen spent half his time shooting hoops and the other half day trading. When it came time to find a job for him and his troubles plagued him, the economics student first consulted with a mentor, who put him in touch with a former student. That connection led the Maine native to T. Rowe Price in Baltimore. Since joining the investment management firm in 2000, Mr. Allen has risen through the ranks, and in 2009 he became portfolio manager of the T. Rowe Price Science & Technology (PRSCX) fund. Founded in 1987, the Growth Fund aims to capitalize on innovation. . Shares soared nearly 38% in 2023 following the latest artificial intelligence boom that boosted battered tech stocks last year. Over the long term, the fund, with an expense ratio of 0.84%, offers 10- and 15-year trailing. They return more than 16% and about 13%, respectively. Since launching his PRSCX YTD Mountain PRSCX stock fund of over $7 billion in 2023, a key part of Allen’s strategy has been finding stocks he believes are undervalued. , cash governs the investment framework around his flow analysis. Allen also sees his sound and independent research as an important part of his methodology. Allen has benefited from a spectacular rally in tech stocks this year, fueled by a frenzy for all things artificial intelligence. That said, “I try to be very disciplined about my ratings,” Allen insists. “I think valuations tend to be ignored, or mostly ignored, especially in tech investments.” Leading chipmakers that own and benefit from AI, such as Nvidia and Advanced Micro Devices, have also risen 189% and 70%, respectively, this year. Other major holdings include Microsoft, Salesforce and German online retailer Zalando. As of March 31, just two stocks, Microsoft and Alphabet, together accounted for nearly one-fifth of the fund’s portfolio. Both stocks are up more than 38% this year as investors bet on the promise of AI and the scramble between the two companies to provide the service. Best generative AI model. But the fund has backed Microsoft since 2008 and acquired Alphabet last summer, long before its recent gains. Allen expects recent technology trends to continue to boost what he considers high-quality stocks, and has applied the same philosophy to his position in Amazon, which is currently the fund’s fourth-largest holding. there is Even in 2022, when PC recession and uncertainty rocked the tech sector, sending the Xbox maker’s stock down about 29%, Allen backed Microsoft. Allen opened his position at Alphabet last year when a slowdown in advertising cycles drove many investors away from Google’s parent company, pushing multiples down to the low 10s. Allen saw its solid fundamentals unchanged. “It’s kind of unusual to get a great business at a lower than expected P/E ratio…growth rate. That’s why I felt really comfortable with having a particularly large position in stocks,” he explained. That same thought bolstered Allen’s confidence in Salesforce last year, despite a 48% plunge in its stock price, weak earnings, and the resignation of its co-CEO. The stock was one of Allen’s biggest losers in 2022, but the portfolio manager expects a significant rally as IT spending improves. Salesforce has recovered more than 58% this year. “I think this company is hitting double digits on the top line, margins are expanding significantly, and it’s trading at 15x free cash flow. I didn’t understand it at all.’It would be nice if this was discounted,’ Allen said. In consideration of his dedication to valuation, Allen has cut back on exposure to some of the technology names that have risen in value recently and slashed his stakes in Nvidia, Metaplatform, Advanced Micro Devices and Amazon. Unusual plays and new additions Not all names in Allen’s portfolio are widely bought on Wall Street. Despite Zalando’s recent declines, Allen said the stock looks “very cheap” and the company appears well positioned to gain market share with its abundance of products. The stock was among Allen’s top 10 as of March 31, but is undervalued by at least half based on long-term cash flow projections and could triple in the next few years, he said. is estimated. Accenture this week predicted lower-than-expected earnings this quarter, but it remains a “leading” technology services company that can guide companies looking to adopt AI. Allen was ranked seventh at the end of March. Recent additions to the fund include Mastercard, Apple and Texas Instruments. Mastercard has lagged the stock performance of many tech giants, but Allen sees similar growth potential, with less cyclicality and less risk. The low-risk approach also applies to Texas Instruments. The analog semiconductor name has a lead of less than 2% this year, but Allen said the company offers a strong track record of increasing shareholder value and returning capital through share buybacks and dividends. The yield of TXN is 3%. Recently, the T. Rowe Price Fund has outperformed in a downturn. The fund lost more than 35% in last year’s crash, while other tech funds lost an average of 37.4%, according to Morningstar. For Allen, every investment and every cycle is another learning opportunity to perfect his craft. “It’s very important to take the time to learn when things are going well, especially when things aren’t going well,” Allen says. “In my 23 years in the business, one of the things I’ve been really focused on is sticking to the process I believe in and carefully assessing what I can do to improve incrementally. That’s it.”
