Playing to the small-cap theme in tech, Hershey likes so-called enablers from across the hardware, software and chip spectrum, which allow various technologies to integrate more efficiently with each other. One such company is Research In Motion, a maker of products for wireless communications. The fund is also high on internet security names such as Internet Security Systems, Cyberguard and Checkpoint Software.
Gaming companies are another favorite group. "These can be a good long-term play given the strength of lotteries, the demand for casinos to alleviate the public debt crisis in various states, and the proliferation of Indian gaming," says Hershey.
Value still matters to many growth managers, and for those folks the market run-up makes it harder to find good deals. "We look for companies we think have sustainable growth, and we try to buy them at reasonable valuations," says Rick Aster, manager of the Meridian Growth fund. "Valuations clearly aren't as good as a year ago."
This mid-cap growth stalwart has been one of the category's best performers during the past three- and five-year periods, helped by a healthy 47.9% return in 2003.
The quest for value has led some mid-cap managers to sell some of their winners in smaller, speculative companies and pick up larger, steadier names with more perceived upside potential, says Morningstar analyst Dan Culloton. "The lesson we should've learned earlier this decade is that valuations can get extended," he says, "and that valuations still do matter."