This T. Rowe Price tech fund returned 75% in 2020 by getting in early on Zoom, other tech breakouts

Published Mon, Jan 18 20219:24 AM ESTUpdated Tue, Jan 19 20217:59 AM EST

Alan Tu, a portfolio manager at T. Rowe Price , had some very happy clients in 2020. The firm's Global Technology fund ( PRGTX ), managed by Tu, returned a whopping 75.6% last year. The fund outperformed 81% of its peers in the Technology category, according to Morningstar. It also beat the category's Morningstar U.S. Technology Total Return benchmark index by 27.6 percentage points. But that sharp outperformance wasn't driven by any sophisticated quantitative models. Instead, Tu used something that has been in place for years at T. Rowe Price to manage such returns: a commitment to traditional stock-picking. "At the end of the day, our bread and butter is very fundamentals-based bottom-up investing," said Tu, who has been managing the fund since May 1, 2019. "When you look at the list of companies that are going public, these are, more often than not, companies that we've gotten to know for years. "That helps inform us and identify the data points that might help us adjust our viewpoints about them," Tu added. Tu noted that the firm's bottom-up process starts with analysts "doing the groundwork" and getting to know companies and their management teams sometimes before they go public. In some cases, the fund has invested in companies while they are still private to develop "good relationships with management teams." In early on Zoom One example of such a company is Zoom Video . The fund first bought into the video-conferencing platform in June 2019. Since then, the stock has skyrocketed more than 386%. Zoom holds a weight of 2.38% within the portfolio. Tu pointed out he had met Zoom CEO Eric Yuan three-to-four years before the company went public. In those years, Tu said he thought the company was an attractive investment because of its disruptive nature to the teleconferencing and video-call space. But what reaffirmed Tu's conviction in the company was Zoom's ability to consistently report profits, easing the market's early concerns over the state of its balance sheet. Another example that highlights Tu's and T. Rowe Price's commitment to bottom-up investing is Atlassian, an Australia-based company that develops products for software developers and project managers. Tu added the stock into the fund in June 2019. Atlassian shares are up 75.7% in that time, outperforming the S & P 500 by about 40 percentage points. Atlassian makes up 2.76% of the entire fund. "The origin story there is interesting," said Tu. Atlassian "didn't have venture-backed funding. So, it always had to be profitable, which is very different than many tech disruptors." "Because of the conditions in which the company was founded and grew, it basically got to scale with a very differentiated business model," said Tu. Top long-term track record This approach has also yielded strong results over the long haul. According to data from Morningstar, the fund has returned an annualized 18.4% over the past 15 years, putting it in the top 2 percentile of its category. The fund has also outperformed 99% of rival funds within the category over the past 10 years, returning an annualized 23.2% in that time period. To be sure, the technology stock fund — which has $8.5 billion in assets and an expense ratio of 0.88% — also benefitted greatly from society's quick adoption of different technology services during the Covid pandemic. Amazon and Shopify — two of the fund's biggest holdings — rose 76.3% and 184.7%, respectively, in 2020 as consumers ramped up online orders due to lockdown restrictions keeping people at home for longer. Amazon has a 5.49% weight in the fund, and Shopify accounts for 4.4% of the portfolio. "That core backdrop is pretty important," Tu said. "During periods of dramatic change, and because technology is gaining share in the economy and is proliferating to other industries, there's just a lot of very powerful secular trends that we believe are durable and long term in nature." Still, from "a portfolio-construction perspective, our approach really more bottoms-up than it is top-down," said the portfolio manager.

A screen shows the Dow Jones Industrial Average after the close of trading on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 22, 2016.

Brendan McDermid | Reuters

Alan Tu, a portfolio manager at T. Rowe Price, had some very happy clients in 2020.

The firm's Global Technology fund (PRGTX), managed by Tu, returned a whopping 75.6% last year. The fund outperformed 81% of its peers in the Technology category, according to Morningstar. It also beat the category's Morningstar U.S. Technology Total Return benchmark index by 27.6 percentage points.

But that sharp outperformance wasn't driven by any sophisticated quantitative models. Instead, Tu used something that has been in place for years at T. Rowe Price to manage such returns: a commitment to traditional stock-picking.