Tech funds braced for mass inflows
After 10 years in the wilderness, there is a renewed interest in the sector.
The emergence of quality, trustworthy companies such as Google, Apple and Microsoft could result in a significant uptake of funds in the tech sector, according to Chelsea Financial’s Darius McDermott (pictured)
Although IMA Technology & Telecoms is among the top-two best-performing sectors over three- and five-year periods, memories of the dotcom crash in the early 2000s mean there has been little interest in its funds.
However, McDermott believes the tide may be about to turn.
"After being out of favour for more than a decade, technology stocks and funds are starting to get popular again," he said.
"There have been questions over another bubble, but I don’t think this is on the cards. Back [during the dot com crash], companies were merely burning through their cash and had little or no earnings to speak of. Now we have firms producing revenue, and huge players with massive cash piles such as Microsoft, Apple and Google."
"Apple has even started paying dividends and Microsoft increased its own by 25 per cent last time around. New innovations have brought changes to the lives of both businesses and individuals and the population's love of technology and gadgets is alive and strong."
"Already a third of US teenagers have an iPhone and by 2015 tablets are expected to outsell desktop personal computers," he added.
A number of high-profile equity managers have recently shown a greater willingness to take big positions in technology. FE Alpha Manager John McClure’s Unicorn Free Spirit portfolio has recently increased its exposure to some 80 per cent, while other UK managers, including Jupiter’s Ian McVeigh, have taken significant off-benchmark positions in Apple.
McDermott urges those who are bullish enough to invest in a pure tech fund to be extremely selective.
"Single-sector funds can be extremely risky so investors should think carefully before investing," he continued.
"My favourites in the technology sector are the AXA Framlington and GLG funds as well as the Polar Capital Technology Trust
run by Ben Rogoff."
"The advantage of having an active manager rather than an index fund or ETF is that if the manager doesn't want to buy a stock like Facebook because they think it is too pricey, they don't have to."
Of those funds mentioned by McDermott, the £213m AXA Framlington Global Technology fund has the best record overall. According to FE data, it is a top-decile performer in its sector over three-, five and 10-year periods.
Performance of fund vs sector over 10-yrs
Source: FE Analytics
In the last decade, it has delivered 118.75 per cent, outperforming the average fund in its sector by 65.35 per cent.
"Anyone wanting a more diversified play could think about a US equity fund instead," McDermott added. "The AXA Framlington American Growth
fund currently has a third of its investments in the technology sector, for example, so you would still be getting a good selection of US tech companies but with the added diversification of other US sectors included."
A recent poll conducted by Barclays Stockbrokers strengthened McDermott’s argument. About 80 per cent of investors polled said they were interested in technology as an investment opportunity. A third said they already invested in technology and would seek further opportunities, while a further 31 per cent said they were monitoring the sector.