Technology shares have been the driving force behind world markets for what feels like an eternity.
The emergence of the Fangs (Facebook, Amazon, Netflix and Google) alongside China’s BAT – Baidu, Alibaba and Tencent – as major forces in modern life and modern stock markets has changed the game for investors. More than ever before, investment professionals are prepared to back lossmaking, highly valued companies in the belief that future growth will more than compensate.
Fund managers are not usually slow to spot a marketing opportunity, but for once their own response to this trend has been muted.
The Technology and Telecoms sector remains the fourth smallest in the Investment Association universe: just a handful of funds have been launched in the space over the past three years, and 70 per cent of its funds have been around for eight years or more.
One reason for this is the perception that investors have a limited interest in thematic funds – even if the theme in question has helped propel the bull market higher in recent years.
While that may be the case for advisers, data from Asset Allocator, a sister publication to Money Management, shows a reasonable amount of interest in dedicated technology funds from discretionary fund managers. Polar Capital’s open-ended offering is by far the most popular strategy among this group, although funds such as Fidelity Global Technology and Gam Star Technology have also attracted interest.
Retail investors have tended to prefer the Scottish Mortgage investment trust as their dedicated technology play of choice. The Baillie Gifford-managed vehicle does not qualify for our analysis because it sits in the Global sector rather than the tech universe – and because Baillie Gifford does not classify the strategy as solely a tech product. Were it included, its performance would rank it eighth in Table 1 over five years, and second over 10 years.
Relatively speaking, advisers’ interest in Scottish Mortgage has been less voracious – though this is because of their reticence to buy investment trusts rather than a preference for dedicated technology funds. Instead, they remain content to tap into the tech story via a mainstream US equity fund.
In keeping with this, net sales of technology funds look fairly muted at first glance. Average monthly retail sales for the sector over the past year stand at just £36m: hardly a sign of considerable interest.
But there are signs that more are being swayed by the option of dedicated exposure. While total sales of tech funds may be limited, they remained in the black during the fourth quarter of last year – despite that being a period in which tech stocks suffered a notable derailment. And the past two months for which data is available, April and May, show a renewed uptick in interest from investors.
Add to this the fact there are just 16 funds in the sector, and sales suddenly look very healthy. To put that another way, the typical tech fund has sold better than the average fund in any other equity sector (barring Global) over the past 12 months.