Mr. Donlon: Manning & Napier is an investment manager with approximately 18 billion in assets under management. We were started in 1970 as a separate account manager, building blended portfolios, primarily of stocks and bonds, to meet specific client objectives. Over time, we've complemented our separately managed account focus with a series of collective investment trusts and mutual funds, including life cycle funds, of which Manning & Napier is a pioneer. On the equity side, our analysts are divided into six bottom-up sector groups and three top-down oriented groups. The bottom-up groups are responsible for populating our portfolios and all the bottom-up analysts cover their industries on a global all-cap basis. The top-down groups provide informational support to the bottom-up analysts to factor into their industry and company analysis. Essentially, the job of the top-down individuals is to provide broad macroeconomic overviews and identify areas of risk and opportunity in the markets, which our bottom-up analysts then in turn factor into their company and industry analysis. I joined the firm back in 1998, and I'm currently a Senior Analyst and the Managing Director of the Technology Equity Research team. I'm also an employee owner and member of the firm's Senior Research Group. I graduated from Canisius College with a Bachelor's in Finance. I also have an MBA from Duke University and hold the CFA distinction. The Technology Equity research team is responsible for the traditional IT industries, including semiconductors and semi cap equipment, data networking, telecom equipment, hardware, software, storage, IT services and all other related sub industries.
TWST: How has the turmoil in the market and the weakened economy impacted your
investment this past year?
Mr. Donlon: Basically, from a broad-based macroeconomic point of view, the
market environment was really shaped by the credit crisis, and it has been the
gradual thawing of the credit markets in recent months that has led to the
better numbers we have seen lately. Essentially, the credit markets really
choked up all enterprise IT spending growth and consumer-related spending
growth. As far as its impact on technology, there are certainly a lot of
investing headwinds with enterprises and consumers having less access to credit
for IT projects and big ticket purchases. The cost of capital was rising, which
impacted technology demand and stock valuations. The financial vertical, in
particular, was frozen and consolidating, and it represents 10% to 20% of IT
spending.
We saw slowing technology spending outside of the United States and Europe, as
the credit crisis spread. Emerging markets had previously been picking up the
slack, and then we also saw an impact of the stronger dollar toward the end of
2008. That did not deter us from having an overweight in technology and pursuing
that overweight through the market downturn. We saw many reasons to be fully
invested in technology stocks. They did not have the capacity or the supply
issues associated with the technology bubble earlier this decade. We saw
evidence of a lot of bottlenecks, quality of service and compliance issues in
certain areas if IT spending were to be turned off for too long. We thought
technology companies were comparably healthy heading into this downturn.
The technology sector didn't have a lot of the structural issues related to the
consumer and financials, and the bubble hangover really had refocused management
teams on profitability versus growth at all costs. What we saw was a very
proactive capital efficiency and cost structure on the part of management teams.
Technology company balance sheets were very healthy compared to prior downturns
and we thought that this was a favorable backdrop to support continued R&D
investments, targeted M&A and share repurchases with really little need to
access credit markets at a time when it was nearly impossible to do so.
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