Technology is an oasis of growth in a global economy that lacks it, says Josh Spencer, the portfolio manager of TD Science & Technology. "I believe technology is one area to drive its own growth, through innovation, new products and product cycles, as well as market-share gains," says Spencer, a member of the team responsible for the global technology strategy of Baltimore-based T. Rowe Price Associates, Inc. "I do think technology is gaining share within the economy, and I think that provides fertile opportunity."
In selecting technology stocks, Spencer says the T. Rowe Price team wants to see evidence that a company can drive a successful business model, and that it has the potential for revenue growth and good profitability.
The team avoids companies that are overly capital-intensive and that are going to struggle with cash-flow needs in the future. "I like to have companies that are self-funding," says Spencer. "Even in their early days, it's something that I shoot for."
The TD mutual fund holds 45 to 50 of T. Rowe Price's "best ideas," most of which are large-cap companies. "Platform" companies on the Internet, which offer broad online services, are among Spencer's favourite investing themes.
Along with U.S.-based 
Alphabet Inc. (GOOG), the parent company of the dominant search engine Google, the TD fund's Internet-based holdings include leading companies that serve the huge Chinese market and that are listed in the U.S. through American Depositary Receipts (ADRs).
One of them is Tencent Holdings Ltd. (TCTZF). Founded in 1998, Tencent has grown into one of China's largest and most used Internet portals. Its services include advertising and e-commerce transactions.
Also operating in the Internet space in China is JD.com Inc. (JD), an online direct-sales company. Spencer describes JD.com as "one of my favourite companies in the entire portfolio." He says it is growing its total value of merchandise shipped at 60% to 70% per year. "The brand image is really resonating with the middle- and higher-income consumers in China."
Spencer draws parallels between JD.com and the U.S. online merchandising Amazon.com Inc. (AMZN). But since the Chinese consumer market lacks big-box retail stores, Spencer believes JD.com operates in an even healthier competitive landscape in the online world than Amazon.com did when it was getting established.
Spencer downplays the impact of the slowdown in China's rate of economic growth, noting that it remains one of the fastest-growing major markets. "I truly believe that many investors underestimate the potential arising from China's growing middle class. The Chinese technology stocks that we hold are well placed to benefit from these trends."
In general, Spencer is finding attractive valuations in some of the large-cap Internet-based companies that are already demonstrating their strong business models but still have great growth prospects ahead. As an example, he cites Priceline Group Inc. (PCLN), the global online travel agency which has built a network of hotel properties and other services and last week reported strong earnings growth. (Morningstar senior equity analyst Dan Wasiolek expects the Connecticut-based company to continue to gain global market share in travel bookings.)
T. Rowe Price also favours companies operating in new areas of online technology, such as cloud computing. For example, "someone like Amazon.com," says Spencer, "can do it better, faster, cheaper, and I think that's a trend that's going to grow over time." Spencer likens the possibilities for cloud computing to the potential of the personal computer in its infancy, when it grew to become the huge, household-name technology firms of today.
Spencer likes to be careful about the price he pays for a stock but he will err on the side of the fastest-growing companies. "Technology is a very forward-leaning industry," he says, "and by finding the fastest-growing companies, I can kind of skate where the puck is going, as opposed to where it's been." As well, he's aware of history's lessons on what can go terribly wrong. "I remember the 1998-99 technology bubble well, and I've found that the growing companies outperform the legacy ones."
TD Science &Technology diversifies in various other technology sub-sectors, such as the Internet, software, semi-conductors and hardware. On top of that, it also has exposure to technological innovation in other industries such as automobile manufacturing. One such holding is Tesla Motors Inc. (TSLA), a U.S. company that manufactures luxury electric cars. "In my opinion," says Spencer, "Tesla Motors is one of the most innovative companies in the world."
According to Spencer, the total auto-industry market, estimated to be worth more than US$1.5 trillion globally, provides an enormous engine for growth. "In 20 years, I would be very surprised if the vast majority of cars are not electric," he says. "Tesla's cars will be cheaper and better than the existing options."
