Murdo Murchison's decision to invest in computer disk-drive makers Seagate Technology and Maxtor Corp. is keeping his $19.7 billion Templeton Growth Fund from the ranks of this year's best-performing U.S. equity mutual funds.
Seagate's stock dropped 13 percent this year, and shares of Maxtor fell 55 percent after customers including Dell Inc. demanded lower prices for disk drives. Murchison, only the third manager in the Templeton fund's 50-year history, said he's sticking with the two stocks.
"To stand against the tide, you have to be prepared to look foolish for months, sometimes longer," Murchison said in an interview in New York. His fund holds about 9.5 million shares of Seagate and 12.5 million shares of Maxtor.
The Templeton Growth Fund is up 15 percent this year, placing 25th of 105 similarly managed funds tracked by Bloomberg. Its longer-term record is better. The fund rose at an average annual rate of 12 percent in the past three years, compared with the average 8.6 percent return of competing funds and the 3.2 percent advance of the Standard & Poor's 500-stock index.
Murchison, 39, bought shares of California-based Seagate and Maxtor, the world's two largest manufacturers of disk drives, because he expects demand to be "colossal" as consumers download videos, photographs and music from the Internet. Government regulators also are requiring that financial companies retain data for longer periods, increasing companies' needs for storage space.
"In five years, the pricing issues will disappear, and the two companies will get their inventory levels under control," Murchison said. He also expects smaller competitors to go out of business, further strengthening the market positions of Seagate and Maxtor.
Pricing competition among disk-drive makers is the biggest wild card, said Brent Bracelin, an analyst at Pacific Crest Securities Inc. in Portland, Ore., who has a "sector perform" rating on Seagate. For investors with a five-year view, it's a "valid argument" that there will be fewer disk-drive makers, he said.
Murchison said he pays more attention to long-term business trends and profit margins than he does to quarterly financial reports. A stock makes it on to Murchison's buy list once it has the backing of Templeton's 40 analysts and money managers. The fund has more investments in companies outside the United States than inside it.
The Templeton Growth Fund was started in 1954 by Sir John Templeton, who ran it until 1987, when he was replaced by Mark Holowesko. Murchison, who is based in the Bahamas, succeeded Holowesko at the end of 2000. Holowesko now serves as president for Templeton Capital Advisors, a unit of Franklin Resources Inc. of San Mateo, Calif.
Murchison joined Templeton in 1993, after working three years in London as an oil, gas and mining company analyst at Schroder Investment Management Ltd. He received a law degree from Edinburgh University.
