The recent tech selloff — all right, mauling in some cases — has spooked many investors, especially those that specialize in the kinds of tech, internet, software, and consumer stocks that have been tumbling.
One manager who remains upbeat is Paul Wick, who manages the Seligman Tech Spectrum fund. In a phone interview late last week, Wick coolly stressed that this has happened before, adding, “Next week, we have a lot of earnings coming out. I’m optimistic.”
He ticked off the names of a number of major tech companies scheduled to report earnings the week of January 24 that he believes will deliver good results, including F5, Microsoft, Intel, Lam Research, and Apple. “I’m hopeful the market then breathes a big sigh of relief as better results come out and people feel a little better about how fundamentals are acting,” he said optimistically.
Wick is worth a listen. In 2021 — a year when many of the most high-profile tech managers posted losses — Seligman Tech Spectrum, a long-short fund that specializes in technology, media, telecom, and healthcare, was up more than 50 percent, after surging 12 percent in December, a disastrous month for many tech investors. In fact, in the fourth quarter, the fund doubled the 25 percent return it had generated through the first nine months of the year.
Last year’s gains were driven by both longs and shorts, in a year when many tech funds lost huge amounts from their short book. Seligman Tech Spectrum, which managed $1.5 billion at year-end, typically runs between 110 and 130 percent long and between 50 and 70 percent short.
Wick would not disclose performance or sources of performance, but an investor confirmed that the short book was profitable for the year. And according to a Seligman document obtained earlier by Institutional Investor, shorts through October accounted for roughly a fifth of the fund’s total gross gain over the first 10 months of the year, despite a huge loss in October.
Seligman looks to short companies with one or more of the following characteristics: they have extreme levels of valuations; they have persistent losses and cash burn; they’re fads; they have incompetent and/or unscrupulous management teams; or they engage in aggressive accounting practices.
Wick said in an earlier interview that his team has been actively shorting Chinese ADRs and small, one-product healthcare companies. According to a document seen by II, Seligman’s three biggest winners on the short side through October were healthcare companies: iRhythm Technologies, a digital healthcare company focused on the advancement of cardiac care; Allakos, Inc., which is developing therapeutic antibodies; and Nevro Corp., a medical device company.
Sure enough, shares of Allakos plunged 90 percent on December 22 alone, after the company announced that an experimental drug had failed two key clinical trials. Shares of Nevro, meanwhile, were more than halved from the late June high.
In the November interview, Wick said he was very bearish on Carvana, the online used-car seller. Since the end of October, the stock has skidded by about 55 percent. Meanwhile, Quantumscape, a battery company that Wick asserted two months ago won’t have a product for a number of years, “if ever,” has fallen 45 percent since the end of October.
“We remain bearish on a host of money-losing companies, especially biotech, software, internet, and electric vehicle companies,” Wick said last week. “We’re also bearish on companies that have disclosed that they’re under DOJ or SEC investigation. There are a number of biotech and biology-related companies under active investigations.”
Wick also said he’s bearish on high-profile pandemic winners. He wouldn’t confirm it, but if he’s alluding to Peloton, the exercise bicycle maker’s stock has plunged more than 80 percent since the end of 2020.
On the long side, the fund did well in the fourth quarter with its semiconductor capital equipment companies, computer hardware companies, and data storage and data networking companies. “IT demand was strong in the second half of last year, [when] the return to the office started to gain some momentum,” Wick explained. “We were well represented.”
He also said Seligman was well represented in security software that benefits from high-profile hacks and ransomware. “The industry did very well,” he said. “We had good exposure to several leading companies.”
Heading into 2022, Wick said that he was still very bullish about semiconductor capital equipment companies, fueled in part by recent announcements that Taiwan Semiconductor, Samsung, and Intel plan to spend huge sums on new plants and equipment. Companies like Lam Research and Applied Materials “are very well positioned for that robust spending,” he said.
Wick also likes gaming company Activision, especially given its recent announcement that it will be acquired by Microsoft for $95 a share in cash. “It’s trading at a big discount, because some fear the U.S. government will reject the deal on antitrust grounds,” Wick explained. But he added that he’s more confident that Microsoft will prevail.
