Wedgewood's Rolfe see Apple and Google as winners
BOSTON (Reuters) - The latest headlines about Google and Apple pit the companies against each other in a heated battle for smartphone supremacy, but both will end up winners, according to fund manager David Rolfe.
Rolfe, who runs a concentrated portfolio of just 20 to 25 stocks at the new Riverpark/Wedgewood Fund, says the history of technological development shows the market will easily support two or even three major platforms in the end.
"When the prism of such stories is winner take all, we think that misses the bigger story that these two ecosystem-driven platforms are basically crushing everybody else," Rolfe said in an interview with Reuters. "We think the news in the Apple-Google smartphone fight is literally Google, Apple and who else?"
The new fund, which opened in September, represents the first time ordinary investors can access Rolfe's investing prowess in the large capitalization growth stock segment.
As chief investment officer at Wedgewood Partners in St. Louis for almost 20 years, Rolfe ran up an impressive track record.
He has outperformed the Standard & Poor's 500 index by 7.3 percent a year since 2007 and by 3.0 percent annually over the past 10 years in audited results after fees of private accounts he oversees. Since 1992, his average annual margin over the S&P was 3.2 percentage points.
APPLE A HOME RUN
While some pundits fear Apple Inc shares cannot continue to rise after quadrupling since the end of 2008, Rolfe argues that the price has barely kept up with the rise in revenue and profits. He first bought Apple in 2005 under $80 a share. It is now the fund's top holding.
"Outside of the iPod, here's a company that has low market shares in globally enormous markets," he said. "And they are in large part defining and redefining the changes in those markets."
Amid rumors of new, cheaper iPhones and an updated iPad line coming soon, Rolfe expects Apple will broaden its two fast-growing lines with lower-priced models, just as it did with iPods and personal computers.
"There's an iPod for every possible user experience and pocketbook," he said. "It would defy comprehension that Apple would not also embrace multi-product lines in their iPhone and iPad."
New products will increase the base of potential customers by four to six times, providing another huge boost to Apple's growth, he said. "It will be a home run," Rolfe said.
Google Inc is benefiting from fast sales of phones running its Android operating system, which generate more Internet searches and ad sales, Rolfe said.
"Last time I checked, mobile search was up about 300 percent," he said. "Google is just doing astoundingly well in the mobile ad market."
FIGHT FOR THIRD
Microsoft Corp's recent deal to supply its Windows Phone 7 operating system to Nokia could also end up a winner, but in the meantime other players like Research In Motion could be deeply wounded, Rolfe said.
"I'd be really worried if I was anybody else," he said. Microsoft's history shows "they are not afraid to lose billions for many years promoting a product line. They have bottomless pockets to fuel this endeavor."
Rolfe does not see much of a future for Hewlett-Packard's new WebOS devices based on software acquired from Palm. Intel's struggling Meego effort is also hurting.
Other top positions in Rolfe's fund include pharmacy benefits manager Express Scripts, medical supplier Intuitive Surgical and online retailer Amazon.com.
Born and raised in St. Louis, Rolfe caught the investing bug in college at the University of Missouri, where he helped start a student investing fund with $15,000 in 1985.
After graduation, he started at brokerage firm Paine Webber but quickly switched to the "buy side." He has been chief investment officer at Wedgewood since 1992.
As the tiny new fund expands, Rolfe said he will buy more shares of his favorites but does not plan to hold more than about 25 positions at a time.
"We think less is more," he said. "Why diversify away your best ideas?"
(Reporting by Aaron Pressman; editing by John Wallace)
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