For the first time in six years, US fund managers have, on average, managed to outperform their indic...
Mainstream fund managers pipped the S&P500 at the post in 1999, returning 27.4% against the index's 25.7%. Small cap fund managers did particularly well, securing more than double the performance of the S&P 600 Small Caps Index, with an average 31% gain against the index's 12%.
Last year's volatility gave fund managers plenty of scope for error. Leading stocks switched from internet stocks to cyclicals before the final technology surge at the end of the year, but it was growth fund managers, especially those concentrating on technology, that performed the best. Value-chasers lagged behind.
Despite the increased volatility and the fact that the markets performed significantly better than in 1998, the performance spread between funds stayed at about the same level.
Standard & Poor's Peter Norton puts this down to a broad trend amongst managers to align themselves more closely to their benchmarks, which in effect made them more growth-oriented. As long as technology stocks account for such a large part of market performance, managers will remain under pressure to keep up their exposure to technology.
Not only are mainstream technology stocks driving market growth, but a huge proportion of start-ups are in that sector. But it is not only technology that is benefiting. Venture capital in all sectors is surging, roughly doubling in value every year for the past three years. In 1999, US venture capital totalled $40bn and this massive capital movement plays a large part in driving not only the small cap sector but the whole corporate arena.
The effect of this flow is mirrored in the mutual fund sector, where billions of dollars per week are flowing into riskier, more aggressive portfolios.
Roy McKay, fund manager for Scudder Investment's US Small Company Growth fund, concentrates a great deal on the internet and computers. His strategy is to find companies in each growth section of the market and seek out the market leader.
He is constantly tracking new technologies, waiting for them to hit the mainstream. He said: "When a company such as Wal-mart thinks that its future is as much online as it is bricks and mortar, then it shows that most are adopting the technology."
McKay thinks this is not surprising, given the advantages a web presence can bestow.
Consumers globally have seen software front ends used to increase flexibility of access. However, there has been as much effort put into automating the backend, the connection between the company and its suppliers.
"At the backend the suppliers are all going to be auctioned off. The raw material supply chain will be ruthless," McKay said.
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