Even in a year with a huge tech stock rally, Columbia Global Technology Growth Fund (CTYRX) stands out for its outsized gains. The $2.5 billion fund is up more than 45% in 2023, outperforming the Nasdaq Composite, which has risen 36.5% through Tuesday. It has also delivered returns over the long-term, with a 20.1% annualized return over the last 10 years that puts it in the 18th percentile, according to Morningstar. Columbia Management balances secular growth opportunities and “value opportunities” to create consistent returns over time, said the fund’s senior portfolio manager Rahul Narang, who has run the fund since 2012. The California Polytechnic State graduate underscored his process-oriented approach to create a long-term, multi-prong portfolio. Three buckets Narang divides his portfolio construction into three categories. The first includes companies with the “best business models,” or those with sustainable advantages — which tend to lean toward growth-oriented names. For this category, Narang said he gravitates toward network effect-type businesses, avoiding businesses with weak balance sheets. “If you look at our turnover, it was only 8% last year. So we’re not a high turnover strategy. We really try to find the ‘best of breed’ growth and strong moats around these businesses,” said Narang. Narang then looks for themes to overlay into his portfolio — to which he says “there’s no limit.” The fund manager has extensive experience covering the tech sector, having begun his career covering computer hardware for JPMorgan almost 30 years ago. He called artifical intelligence the most notable theme in his portfolio — reflected in holdings of Microsoft and Nvidia, the fund’s second- and third-largest positions. Notably, he first began adding Nvidia to the portfolio in 2014, which has netted a more than 157% return over the last year. The final bucket in the portfolio is value opportunity names, or stocks that Narang and his team believe have valuations cheaper than the entire portfolio. The value component helps balance the portfolio when there’s a sell-off in high-growth names during risk-off periods, Narang noted. As a result, the portfolio tends to hang together “a lot better than our high growth peers because of this value component,” said Narang. “It’s not one or the other — the three [buckets] combined can create a lot of alpha — some powerful opportunity and powerful returns for investors.” Narang emphasized that certain stocks could overlap among all three categories, citing Broadcom as an example that falls into all three camps. Capturing both sides Narang said finding the right balance between growth and value is critical due to the unique nature of technology stocks. He cited data from Alliance Bernstein showing that tech stocks in the most expensive and least expensive quintiles tend to outperform historically — suggesting the attraction of a balanced approach. “What happened to stocks in the middle is, they often get stuck in growth purgatory — and those usually underperform,” Narang said. “Returns seesaw between growth and value over various periods of time,” he added, noting this year’s growth-oriented tech rally after last year’s drubbing. “Our hope is that we’re able to capture both sides. Global mandate Over the last 11 years managing the fund, Narang called its “global mandate” both the biggest challenge and opportunity for him. To be sure, Narang does have a global personal background — he credited four years in boarding school in India for giving him the “intense focus” needed for managing his clients’ assets. But he did not have experience investing in technology on a global basis prior to managing the Columbia Threadneedle fund. Investing “successfully on a global basis” requires building relationships and resources across the world, he said. Today, some of the overseas names in the fund include chipmakers ASML Holding, NXP Semiconductors, Taiwan Semiconductor Manufacturing Co. and Samsung. The fund is rated four stars by Morningstar and has an expense ratio of 93 basis points (0.93%).
