Fund manager's comment/Raj Hallen
Such has been the popularity, particularly in 1999 and the first half of 2000, of funds specialising in technology and telecommunication issues, that Autif created a new sector specifically for these funds earlier this year.
Previously, these funds were found in the Specialist sector, which includes financials, healthcare and other funds that either focus on a theme or a single country (other than Japan, US or the UK). Autif also has a sector for index bear funds, of which there is just one, Govett's US Index bear fund.
A look at historic sales figures gives a clear indication as to why a separate sector was created for the technology and telecom-based funds. Inspired by the performance and the industry's marketing machine, investors jumped on the bandwagon, investing £2,373m in the calendar year 2000, three-and-a-half times as much as in 1999 (£679m).
The demise of technology and telecom funds over the last 15 months has been well documented: valuations were too high and unsustainable, profit warnings and earnings downgrades came one after another, dot.com companies collapsed and market sentiment turned away from these high growth, high beta areas.
Those investing in this sector in the first three months of 2000 are clearly nursing some heavy losses. For example, an investment of £1000 in the average fund in the sector made 16 months ago (20 March 2000) would now be worth £336, a staggering 66.4% loss.
But what of the other specialist funds? Because of the diversity of the 41 fund specialist sector, performance within it is varied, and ranges from -43.44% to +65.8% over the same 16-month period. A closer inspection of the sector shows that of the 11 funds that produced positive returns, all five financial funds were in this category.
So what of the index bear fund? It basically does the opposite to the S&P Composite Index. Over the same 16-month period, the fund has returned an exceptional 45.8%, while its inverse benchmark, the S&P index has returned -16.3%. One interesting fact is the amount invested in this sector last year ' there were actually net redemptions of £1.4m, but this may have been down to the fund's poor performance, as would have been expected during the five-year US bull phase.
With the benefit of hindsight, many investors would have stayed well clear of the technology and telecom sector last year, investing instead in specialist areas that would have made them money ' financials and even the US index bear fund.
Those looking to go down the route of investing in specialist funds should ideally first have a core balanced portfolio (perhaps a fund of funds) on which to build; second, seek professional advice and finally diversify within specialities to limit sector-specific downside risk.
• Tech/telecoms sector valuations attractive.
• Positive themes in financials/healthcare.
• Greater potential for returns.
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