Actively managed technology funds have been left trailing in the past year as they have been unable to match index returns.
The soaring stock price of giant US firm Apple has left active technology managers licking their wounds, as Ucits rules prevent funds from replicating the dominant weight the company has in technology indices.
Meanwhile, the brutal sell-off in high-growth areas, such as big data and cloud computing, also left active managers nursing large relative losses in 2014.
Analysis of the Investment Association Technology and Telecoms sector shows that in the past year, and for the 2014 calendar year, the best-performing fund has been a passive fund tracking the FTSE World technology index.
The Legal & General Global Technology Index fund has benefited significantly from being allowed to invest 17.4 per cent of its assets in Apple.
None of the active funds in the sector have more than 10 per cent of their assets in the iPhone manufacturer because they are banned from doing so under Ucits regulations.
This means none of the active managers have been able to reap the full reward of the 66.8 per cent rise in Apple’s share price in the past 12 months, consigning the majority of active funds to sub-index performance.
Henderson’s veteran technology manager, Stuart O’Gorman, said 2014 had been a “tough year for active managers” on technology funds.
There were “virtually no technology funds beating the index”, he said, whether they were UK-domiciled funds or offshore funds. “It has been a very volatile market and a very difficult one to invest in.”
He argued that the market had become completely detached from fundamentals such as earnings. It was instead dictated entirely by “what people are willing to pay” for a given stock and what the current market “perception” was of the industry and its outlook, which could fluctuate wildly.
Mr O’Gorman cited the sharp sell-off in cloud computing stocks as a prime example of this shifting sentiment. He said the stocks “collapsed because people decided they did not want to pay these multiples any more”.
High-growth stocks such as Splunk, Tableau Software and ServiceNow plummeted in March and April 2014 in the face of this change in sentiment, dropping by as much as 50 per cent and hurting the many active managers who had bet on them.
Mr O’Gorman, who had largely avoided such high-risk areas of the market, managed to deliver top-quartile returns in the past year, even though he underperformed the index.
Another top performer was the Fidelity Global Technology fund, managed by Hyunho Sohn, which was the only tech fund in the sector that managed to beat its own index – the MSCI AC World Technology index.
However, it underperformed the Legal & General passive fund, which tracked a different index.
