TIP SHEET: MFS's Sabel: Key Trends? Cloud Computing, Smartphones

The rise of cloud computing and the growth of the smartphone market are two trends on which investors can focus for hidden value, according to MFS Technology Fund's (MTCAX) Matt Sabel.

The fund, part of MFS Investment Management, picks individual stocks based on broader shifts in the way companies do business and interact with technology. Sabel called the move to the "cloud"--companies accessing Web-based software and computing power instead of installing applications and servers on their own computers--and consumers' increasing use of high-end phones a sea change for investing.

"We're trying to identify big-sector themes within the industry," said Sabel, the fund's portfolio manager. "It's a lot easier to stock-pick when you know which way the tide is flowing."

Sabel's strategy led to his interest in EMC Corp. (EMC), the fund's fifth-largest holding. EMC makes computer storage that provides the backbone upon which cloud-based applications run. It also has a majority stake in VMware Inc. (VMW), whose virtualization software is also essential to the cloud.

Smartphones may seem more and more common but Apple Inc.'s (AAPL) iPhones have only about 4% to 5% of the total cellphone market, Sable said. This is partly why the Cupertino company is the fund's largest holding by far.

"We're still in very early innings of smartphone adoption and Apple's potential share of that," Sabel said.

He also likes how the company's own cloud-computing product, its iCloud service, which lets users share music and other files among their many Apple devices. The iCloud service makes users more likely to stick with the brand, he said.

The MFS Technology Fund is up 5.3% so far this year, according to research company Morningstar Inc., outpacing the S&P 500's gains. It has also outperformed the market over three- and five-year spans. The fund has about $186.9 million in asset, according to Morningstar.

Sabel admitted that his stock picking isn't perfect. He backed off on semiconductor companies such as Fairchild Semiconductor International Inc. (FCS) last year because he was worried about the weak economy pressuring their businesses. He said he missed out on some chip opportunities, in part because he didn't expect the Federal Reserve to make moves to bolster the economy.

Forecasting the economy isn't a major part of Sabel's stock-selection process.

"I have my views, but so does everybody else," he said. "Where I think I can add value is in-depth research, finding companies that can grow regardless of what the economy's doing."

(Matt Jarzemsky covers technology companies for Dow Jones Newswires. He can be reached at 212-416-2240 or by email at [e-mail].)

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