legg mason telecoms fund posts best performance of the technology and telecoms sector with returns of -69.74% over three year period
The technology & telecoms sector has averaged a 79.06% loss in the three years to December 2002 but within it individual funds have produced some diverse risk and reward trade offs.
Despite the range even the best-performing fund in the technology & telecoms sector, Legg Mason Telecoms, tumbled by 69.74%, bid to bid, over the 36-month period to the end of last year. The annualised mean return of this fund was -30.9%, while that of the sector average was -35.84%.
In the year to December 2002 Legg Mason Telecoms lost 34.33%, in the year to December 2001 it shed 31.03% and in the first year of the period, to December 2000, it tumbled by 33.18%. While overall performance was higher than average, the annualised alpha of the fund was the lowest in the sector, at -9.86.
Jeremy Knight has run the fund since October 2002, taking over from previous manager Neil Massie.
The fund will later this month broaden its remit to hold European technology, media and telecom companies, however, over the past three years it has held purely telecom and telecom equipment business.
Although the telecoms sector has been a poor performer it has shaped up well compared to the ailing technology and media sectors, providing the fundamental reason for the fund's outperformance. In the first discrete year, the 12 months ending 2000, the Legg Mason fund underperformed its peers. Over that period the fund tumbled by 33.18%, while the sector lost an average of 28.98%.
Knight said this was because telecoms was the least impressive of the three sectors during 2000, and so underperformed during that year. There has been a reversal in fortunes in the two years since, with telecoms outperforming media and technology.
The fund currently has 54% exposure to Europe, the remainder is in the US with a small amount in Japan, Hong Kong and eastern Europe. Under the new mandate, the fund, to be renamed Legg Mason European TMT, will hold mostly European companies and be broadened out to the media and technology sectors.
The portfolio currently has 34 holdings. This is more concentrated under Knight's management than that of his predecessor, who had close to 50 holdings.
Top five companies in Legg Mason Telecoms include Vodafone at 9.6% of the portfolio, Nokia at 5.5%, Telecom Italia with 4.9%, Verizon Communications at 4.8%, and Orange with 4.2%.
Apart from its relative outperformance of the peer group, the Legg Mason fund has also proved to be less volatile than the sector mean, also as a result of its focus on telecoms rather than TMT as a whole. The annualised standard deviation (ASD) for the years 2000-2002 was 38.32%, compared to the Standard and Poor's sector average of 42.67%.
If Legg Mason has been at the less volatile end of the peer group then Framlington NetNet, has been right at the other extreme.
With its internet focus it has proved to be a dire performer relative to the peer group. Performance was also more volatile than the sector average, with an ASD of 47.8%, compared to the sector average of 42.67%. The beta of the fund was 1.1.
Framlington NetNet invests primarily in equity securities of companies engaged in research, design, development, manufacturing or distribution of products, processes or services for use with internet or intranet related businesses. The demise of the internet has, unsurprisingly, impacted on performance.
Over the three years to December 2002 this fund shed 87.38% of its worth, compared to the sector average return of -79.06%. Its alpha was -4.42 and annualised mean return came in at -43.43%, compared to the sector average of -35.84%.
The most severe discrete year of underperformance for NetNet came in the 12 months to December 2000, when the fund shed 51.66%, compared to the sector average loss of 28.89%. This was the year that marked the start of the demise of the internet.
The fund also underperformed in the year to December 2001, by losing 48.29%, compared to the sector average loss of 41.34%. In the year to December 2002, Framlington NetNet lost 49.51%, while the sector went down by 49.98%. The fund has been managed by Nick Evans since July 2002 and had previously been run by Chris Bell.
Evans said the focus of the fund has been increased by reducing the number of holdings within the portfolio from 93 at the start of the year to 63 at the end of September 2002.
'We recently increased our exposure to the US at the expense of Japan on valuation grounds and due to our changing sector views. We reduced our exposure to storage and gaming due to weak short term fundamentals,' he said.
Currently, NetNet is 61.7% invested in information technology, with 21.5% in consumer discretionary, 7.7% in industrials, while telecoms services account for 5.1% of the fund. A further 4% is held in cash.
Geographically, the fund is dominated by North America, which accounts for 63.4% of the portfolio. Europe represents a further 13.7% and UK 8.6%.
NetNet's top five holdings include Microsoft at 6.3% portfolio exposure, Yahoo with 5.6%, Ebay at 5.2%, Cisco Systems at 3.8% and Overture Services with 2.6%.
In terms of alpha, the best performing fund within the sector over the last three years has proved to be SocGen Technology, managed by Alan Torry. This fund had an annualised alpha of 13.86, compared to the sector average of 1.26. Over three years, however, the fund lost 73.52%, compared to the sector average fall of 79.06%. Its annualised mean return was -27.16%, compared to the sector average of -35.54%.
Others to achieve a positive alpha over the peer group average include Henderson Global Technology (9.54), OM Gerrard Global Technology (6.14), CF Technology Growth (7.06), Aegon Technology (5.87) Aberdeen Technology (5.2) and M&G Global Technology (4.34).
The worst performing fund in the technology and telecoms sector was Aberdeen Euro Technology, which has shed 88.2% over the past three years. The fund was managed by Ed Protheroe until the start of 2002 and has been managed by Rob Sellar since. It is now in the process of being taken over by New Star. The annualised alpha of the fund over three years came in at -8.24, accompanied by an annualised mean return of -44.95%, compared to the sector average of -35.84%.
This low annualised mean return is reflected in poor performance in each of the discrete years.
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