It's all relative.
When the Nasdaq Stock Market opened yesterday, traders' screens showed more red than the climax of a bad slasher movie. But Dennis McKechnie, manager of Pimco Innovation fund, was upbeat, even as his $5 billion fund had already lost 3% of its value.
"We had a great open," he said.
Because the technology indexes were plunging far more than his fund, the 35-year-old Mr. McKechnie figured the fund was probably well ahead -- meaning it was losing less -- than his competitors. "We're outperforming [the Standard & Poor's Technology Index] by 1.3 percentage points -- that's huge. The open was wonderful," he crowed early in the day. The fund finished the day with a loss of 2.22%, compared with a fall of 4.71% for the index.
Mr. McKechnie's fund, down more than 23% on the year before yesterday's drubbing, is one of the best performers among his shell-shocked group of tech funds. "We know the market's a mess, but we need to outperform," he said. "I can't say I'm not sour" about the losses, he said. "It's real people's money; it's my money. But today we're having a great day, we're doing a lot more than is expected of us."
While it gives him some solace to have done better than his peers in a market that has fallen nearly by half in the past eight months, some fund shareholders might disagree. Even before the latest plunge, the fund had lost 28% of its value in the past four weeks. And even though Pimco Innovation, like many tech funds, is still attracting new money from investors after a posting a 1999 gain of 139%, the question is when will shareholders notice just how bad things have gotten.
"That's the thing about Dennis, he's still getting in inflows," said John Schneider, who runs the Pimco Value and Renaissance funds and whose office is next to Mr. McKechnie's. "Who knows how long that lasts."
Despite his upbeat demeanor, Mr. Mc-Kechnie has hunkered down for the duration. He sells off at least a portion of any holding at the first inkling of bad news and usually regrets not selling more. "Your first sale is always your best sale in a bear market," he said.
Yesterday, he was selling Siebel Systems Inc., which makes software to help businesses manage their relationships with customers and was once the fund's biggest position. He sold after learning that Oracle Corp. was replacing i2 Technologies Inc., which makes supply-chain management software, as a supplier to Motorola Inc.
The connection? He believes Oracle is aggressively trying to take business from Siebel and i2, and if it is succeeding with i2, it must also be succeeding with Siebel, Mr. McKechnie surmissed.
"It's a more nuanced view, more connect the dots," he said. So he sold a third of his shares of the stock, which finished the day at $69.88, off $1.88, on Nasdaq. "In a market that goes drub, drub, drub, you're better off throwing the whole thing out," he said. (David Schmaier, senior vice president of products at Siebel, disputed Mr. McKechnie's view. "This inference is not true. In fact, for us, the market for CRM [customer relationship management] software has never been stronger," he said.)
Mr. McKechnie, whose average holding period for a stock is three to four months, rarely stops moving. He left his Connecticut home yesterday as usual at 4:45 a.m. and drove to his gym near his midtown Manhattan office. During the trip, he listened to 13 overnight voice-mails, then he ran five miles at the gym before getting to work at 7 a.m. At his desk, his head turns to view any one of five computer screens.
Rarely does he look at the stunning view of Central Park out his 50th-floor window.
At 10:30 a.m., he glances at a screen and sees his fund is still ahead of the tech index. "We're just ripping," he says. Fund managers like Mr. McKechnie earn much of their compensation based on how well they perform compared with funds that invest in similar stocks, so beating the competition means a lot, even if they are losing money in the process.
Mr. McKechnie's relative outperformance lately is in large part because of the defense stance he has assumed over the past year. He has moved into bigger, more conservative tech names, such as Cisco Systems Inc. and Microsoft Corp., which have held up relatively well.
That move came out of his judgment that the economy was slowing after the booming fourth quarter of 1999, when the Federal Reserve boosted liquidity in the economy to help smooth the transition to Y2K. Pointing at a chart of the Nasdaq's rise and fall, Mr. McKechnie said: "Maybe all this was just a dream, and we retraced all the liquidity [Fed Chairman Alan] Greenspan created."
And his fund's cash level is an unusually high 11.5%. "Too bad we can't go to 100% cash," said Daniel Koontz, one of two analysts working with Mr. McKechnie. Mr. McKechnie replied: "Fund investors don't like 100% cash," a situation he predicted would cause them to "go to 100% cash" by selling their fund shares.
Mr. McKechnie likes to think about long-term big-picture trends that will affect his fund. The latest is the growing acceptance of Microsoft's Windows 2000, which he believes will kick in during the spring.
That has led him to buy computer makers such as Compaq Computer Corp. and International Business Machines Corp. and chip makers such as Micron Technology Inc. and Intel Corp., in the belief that companies will buy new computers.
But all of those stocks have been battered lately. "In a market like this, we're more likely to grip something that's bad and likely to improve than something that people say is bulletproof," he said.
Mr. McKechnie hangs around the office after the market closes to watch as the returns for his competitor funds roll in. By and large, he did pretty well against them, so he's fairly pleased, despite the loss.
"You have to live to fight another day," he said. "The best thing you can do with a sloppy tape is to stay out of trouble."