Technology funds with high exposure to social media and ‘big data’ companies have been hit by a “brutal” sell-off in expensive growth stocks in the past month.
Among the worst hit were Philip Pearson’s £189.9m GLG Technology Equity fund and the Axa Framlington Global Technology fund, run by Jeremy Gleeson.
High-growth tech stocks have plummeted as part of what global managers have described as a “rotation” out of “secular growth” stocks into more economically-sensitive areas of the market as economic growth picks up.
Social media stocks such as Twitter and Facebook, and big data stocks such as Tableau Software and Splunk, have fallen significantly.
With the sell-off largely confined to the high-growth, expensive portion of the technology sector, it has caused wide disparity in short-term returns from funds in the IMA Technology and Telecoms sector.
The biggest victim has been the GLG Technology Equity fund, losing 13.7 per cent in the four weeks to April 8, according to FE Analytics. The Pictet Digital Communication fund lost 9.1 per cent in the same period.
The GLG fund has been hurt due to the presence of five big data and cloud computing firms in its top 10 holdings at the end of February, along with two social media stocks, including its biggest holding, Facebook.
In contrast, the Aberdeen Global Technology Equity fund, which has avoided the higher growth areas of the tech market and has underperformed its peer group in the past five years as a result, has actually gained 1.1 per cent in the past month.
Nick Evans, co-manager of the Polar Capital Global Technology fund, said the past month had seen a “brutal” rotation from growth to value. His portfolio has lost 6.7 per cent in the past month.
He said small and mid-cap stocks had suffered a particularly hard correction, meaning there had been little change on the larger indices such as the S&P 500. The manager added the spark for the sell-off was not clear, but one of the contributing factors was that “some of these names had become very expensive”.
“High-profile tech stocks, mostly internet companies, had a very good run of performance and valuations had got stretched – and then all it takes is a trigger and you get profit-taking and a pull-back,” Mr Evans said.
Mr Evans said he thought the correction was “two-thirds” completed and that he would look to use his 5 per cent cash weighting to buy back into some companies which he thought looked more attractive following the sharp sell-off.
Mr Gleeson said there had been no negative announcements from companies in the sector, so the sell-off has been “more a market reaction, as opposed to one based on fundamentals”.
As a result, he has been trimming some stocks, such as semiconductors, that have not been affected by the sell-off to invest in some of the stocks experiencing sharp pullbacks.
A spokesperson for Pictet said the team had not changed its view of the fundamentals and had been adding to certain positions following the volatility in the sector.
Pictet pointed out that in the history of its fund, corrections had been quickly followed by even stronger recoveries, such as after the 5.5 per cent drop at the end of January that was followed by a 9 per cent rise in February.
