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Dotcom crash erased from 10-year records

Performance figures for the last decade will no longer reflect the period when the Nasdaq and FTSE fell by 75 and 32 per cent respectively over two years.

By Joshua Ausden, News Editor, FE Trustnet Follow
Thursday August 16, 2012


It’s official: the dotcom crash has now finally been erased from fund managers’ 10-year records. 

Many funds found it extremely difficult to make back the monumental losses sustained in the two-year period between August 2000 and August 2002, during which the Nasdaq fell 75 per cent and the FTSE 32 per cent, but much of this will now be hidden from investors.

Ten years is a fairly typical time-frame for measuring a fund or manager’s long-term performance, so the deletion of the crash will come as a relief to many. 

Updated tables make particularly good reading for the funds in IMA Technology & Telecoms that managed to survive the dark days of 2000 and 2001. Just six months ago, the average fund in the sector was up 36.02 per cent over 10 years – just a touch above inflation. 

Performance of fund and sector from 15 Feb 2002 – 15 Feb 2012

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Source: FE Analytics

A year ago, the 10-year figure stood at just 1.88 per cent. However, today tech managers can draw on an average figure of 130.93 per cent over the last decade. 

Even in the UK All Companies sector, the performance of the average UK All Companies fund over 10 years has jumped by more than 36 per cent in the last six months. 

The best-performing UK fund over this period – Neptune UK Mid Cap – has seen its returns increase by 84.78 per cent as a result of the dotcom crash being erased from the time-frame. 

Performance of fund vs sector over 10-yrs

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Source: FE Analytics

However, the crash is still fresh in the minds of those who suffered heavy losses in the early years of this decade. Despite the stellar returns of the tech market since August 2002, there is little demand for these kinds of products.

The IMA Technology & Telecoms sector has only 13 funds, with combined assets under management (AUM) of £2.36bn. 

By contrast, the newly formed IMA China/Greater China sector has 34 constituents with more than £15bn AUM. The FF China Focus fund alone is £2.28bn in size.

Technology managers point to strong fundamentals and attractive valuations in tech companies and even some multi-sector managers, including FE Alpha Manager John McClure who has upped his tech weighting to almost 80 per cent in his Unicorn Free Spirit fund, say they like the look of this area. 

However, Juliet Schooling-Latter, head of research at Chelsea Financial, thinks it will take a lot more than a polished 10-year track record to entice mainstream investors back to technology. 

"I think it will take a long, long while before the average investor gets into technology directly again, which is a shame because it’s a very exciting sector," she said. "I own some myself." 

"It was such a boom-and-bust time that many are unlikely to forget what happened. You had taxi drivers tipping customers their favourite stocks." 

Performance of indices vs sectors over 15-yrs

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Source: FE Analytics

"I can understand why people would be worried, but it has resulted in a lost generation of investors who have missed out on a sector that’s done very well." 

Chelsea Financial rates GLG Technology Equity, AXA Framlington Global Technology and Henderson Global Technology particularly highly. 

"It’s an area where active management is absolutely crucial, because themes come in and out of fashion very quickly,”  Schooling-Latter added.

"Investing in an index can be very risky, as it may have a big chunk in a sector that is redundant."



 
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Theo Aug 16th, 2012 at 01:37 PM

This article demonstrates very well why investors must be very careful of performance figures presented to them by the fund industry. It can demonstrate any performance it wants quite easily, by simply choosing the right time and period. And there is nothing more deceptive than cumulative performance figures. The last year controls all the others.

Until now the small investors had the IFAs to protect them a little, but from next year onwards most of them will be at the mercy of the fund houses and may God help them.

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