growth of 342.1% necessary over next 12 months to return capital to original level
Despite the recent rally in technology markets, the average technology fund needs to grow by 342.1% during the next 12 months to restore capital invested in February 2000 to its original value.
According to offer-to-bid figures provided by Lipper, even on a three-year investment horizon, the average technology fund would have to grow by 150.7% per year in order to restore an investment of £1,000 made on 29 February 2000 to its original level.
The date 29 February 2000 was selected for the purposes of the survey as it represents a point just before the height of the technology boom.
During the course of February 2000, technology funds made up 16% of Isa gross retail sales, totalling some £175m. In March of that year, the figure invested in technology was even higher, at £375m or 14% of Isa gross retail sales.
Fund flows into technology unit trusts and Oeics accounted for 11% of sales into those vehicles in February 2000 and 17% in March 2000.
A £1,000 investment in a technology fund on 29 February 2000 was worth just £292.30 on average as of 31 January 2002. However, as an average, this figure masks a range of performances by some well-known fund groups.
An investment of £1,000 in the Framlington NetNet fund on 29 February 2000 was worth only £176.58 as of 31 January this year. To return an investment in this fund to its original value, the portfolio would have to achieve an annual growth rate of 566.3% over 12 months, 238% over two years and 178.2% over three years. All figures are on an offer-to-bid basis with net income reinvested.
Aberdeen's European Technology fund has also fared badly. A single sum investment of £1,000 would be worth just £189.45 on 31 January. The fund would need annualised growth rates of 527.8%, 229.7% and 174.1% over one, three and five years respectively to return it to its original value. The annualised growth levels needed to restore the £774.6m Aberdeen European Technology fund to its original level are 311.6%, 176.5% and 146.1%.
The best performing fund in the sector during this period was the M&G Global Technology fund managed by Greg Kerr. This would have preserved £420.57 of an initial £1,000 investment made on 29 February 2000 and would need to grow by 237.8%, 154.2% and 133.5% over one, three and five years respectively to restore capital.
M&G Global Technology fund manager Greg Kerr said: 'We've managed to relatively outperform because we have a consistent approach to investing. We're forward looking investors who care about valuations.
'A lot of investors in technology think the market isn't driven by valuations but by newsflow, earnings momentum and stories. We disagree and assess each and every company in our portfolio's prospects. If we think a stock is overvalued, we won't buy it. We've held fewer of these types of companies than the competition.'
Mark Dampier, head of research at Hargreaves Lansdowne, said: 'Realistically, we're not going to see this kind of growth in the technology sector within the next three years. It is very frustrating for investors but they are going to have to be in this for the long haul.
'The problem is, if an investor takes their money out of technology, where are they going to put it that will see them get back their original investment quickly?'
'To get this level of growth then the sector is going have to to be high risk,' he added. 'It is very painful but investors are going to have to grin and bear it. Significant jumps in the technology market are possible. The market jumped some 40% after 11 September but it will probably take the next big thing, another internet or mobile phone, to generate the level of excitement we saw during the tech bubble.'
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