Five of the best funds investing in tech and how they invest

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Apple was valued at $6billion when the first iPod came out in 2001 but the firm has since hit the $1trillion mark


At the beginning of the millennium Apple, a company that has achieved the rarity of needing no introduction, had a market value of £6billion.

It has since become the first company to hit the £1trillion valuation mark.  

The rise from relative obscurity into a tech juggernaut is not a tale that is unique to the iPhone maker. It is one that holds true for many of the big names – Facebook and Netflix being the most recent examples. 

Apple was valued at $6billion when the first iPod came out in 2001 but the firm has since hit the $1trillion mark

Apple was valued at $6billion when the first iPod came out in 2001 but the firm has since hit the $1trillion mark

It is little wonder, therefore, that there is often a buzz around the tech sector from an investment standpoint.

With innovations like artificial intelligence and self-driving cars emerging from science fiction and becoming science fact, there is a sense that further growth opportunities lurk in the new frontier of technology. 

There are a host of specialist funds designed to profit from growth in the tech sector – although not many.

The Investment Association’s Technology and Telecommunications sector consists of only 16 funds, while the equivalent sector for investment trusts – which trade like shares – from the Association of Investment Companies, has just four. 

The average tech focused fund and investment trust turned £1,000 into £2,248 and £3,074 respectively over the past five years according to data from investment research tool FE Analytics (accurate to 3 August 2018).

Why invest in a fund 

Cherry picking winning stocks in not an easy thing to do. The recent perils of Facebook, which saw about $120billion wiped off its value in a single day, is a good reminder that highly rated stocks aren’t immune to drastic price slides.

Investing in funds means your money is spread across multiple assets. As some investments will perform better and some worse over time, diversifying will, in theory, help spread the risk and smooth returns over time. 

Many of them are invested in FAANGs : one of the latest investment acronyms that groups the US tech kings: Facebook, Apple, Amazon, Netflix, and Alphabet’s Google.

These stocks returned 49 per cent on average in 2017 – outstripping the 19 per cent S&P 500 gained last year. 

Others tech funds favour emerging challengers with the potential to knock the big guns off their perches in the future or invest in a mixture of both. 

But which do investment experts rate?

 We’ve asked a couple to list their top picks and take a closer look at how they invest. 

The best tech funds

Polar Capital Technology Trust – ongoing charges: 0.99 per cent 

Top five stocks: Alphabet, Microsoft, Apple, Facebook, Tencent 

Polar Capital’s performance (%)
One year Three yearFive year
25.73116.99 191.20 

The trust is a firm favourite among all our experts. It targets long-term capital growth by investing in a diversified portfolio of technology companies around the world – although the vast majority (over 70 per cent) of the portfolio is invested in North American stocks at present.

Tom Jemmett, fund analyst at Brewin Dolphin said: ‘In terms of investment style, the trust has a growth bias and the manager intends to avoid last-generation winners and incumbents increasingly at the mercy of the disrupters.

‘An investment in this trust will not only provide exposure to those companies that constitute the FAANG acronym, however will also take part in any success of those companies driving disruption further down the market capitalisation scale’. 

Axa Framlington Global Technology – ongoing charges: 0.83 per cent

Top five stocks: Alphabet, Apple, Facebook, Visa, Cisco

The fund is unconstrained, meaning it can invest in as many companies as it wants, but almost £9 in every £10 in the fund is invested in North American companies.

Axa’s performance (%)
One year Three yearFive year
34.65113.70 192.01

It has exposure to mid-cap – those with a market capitalization between $2 billion and $10 billion- and smaller company names alongside the mega cap US tech stocks.

Ben Yearsley of Shore Financial Planning, said: ‘Axa Framlington Global Technology is a good all rounder. The investment strategy focuses on company and its fundamentals rather than the industry the firm operates in but also applies a thematic overlay.’

Herald Investment Trust – ongoing charges: 1.08 per cent 

Top five stocks: GB Group, Diploma PLC, Next Fifteen Communications Group, IQE PLC, Bango PLC 

Herald’s performance 
One year Three yearFive year
 22.3277.99 125.86

Herald Investment Trust stands out from the other funds listed due to its focus on smaller quoted companies in the areas of communications and multi-media.  

The trust has a global mandate, although over half of the portfolio (56 per cent) is invested in UK stocks.

Jemmett said: ‘Herald continues to see the ‘small cap’ arena in which the trust specialises as full of opportunity, owing in part to an increasingly wide investment universe, many of which are under-researched and some inefficiently priced.

‘There is another source of potential upside, too: the chance of mergers and takeovers, the likelihood of which has increased recently as US technology companies, some holding substantial cash, look to expand and diversify.

Scottish Mortgage – ongoing charges: 0.37 per cent 

Top five stocks: Amazon, Illumina Inc, Tencent Holdings, Alibaba, Tesla 

Scottish Mortgage’s performance 
One year Three yearFive year
32.14107.44 217.54

Yearsley said: ‘Strictly speaking, Scottish Mortgage is not a specialist technology trust but it has had a long-term weighting in the area, currently 26 per cent.

‘This is an unashamedly long-term high-growth play where the managers are happy to back their conviction.’

Holdings in the trust are chosen purely on their long term-merits and aims to achieve greater return that the FTSE All World Index (in pound sterling terms) over a five-year rolling period. It also pays a dividend. 

iShares Automation & Robotics ETF– ongoing charges: 0.40 per cent

iShares’s performance 
One year Three yearFive year
19.29N/A N/A

Top five stocks: Via Technologies, Asmedia Technology, Line Corp, PTC Inc, Elan Microelectronics Corp

The iShares Automation & Robotics ETF (short for exchange traded fund), which launched in 2016, is the only tracker on the list.

The benchmark index, called the iSTOXX FactSet Auto&Robotic, is composed of developed and emerging market companies which are generating significant revenues from specific sectors associated with the development of automatic and robotic technology. 

Jason Hollands of financial firm Tilney said: ‘We’ve started to see a few new funds launched specifically focused on robotics, automation and artificial intelligence.

‘A low cost way to access this theme is through the iShares Automation & Robotics ETF which has ongoing charges of 0.4 per cent and has exposure to 105 individual holdings – 31 per cent of which are in the US and 28 per cent in Japan.’

Risks 

Hollands said investors should be wary about just how far valuations have moved in a short space of time.

Facebook's data scandal in which Cambridge Analytica allegedly took information on 87 million users without their consent

Facebook's data scandal in which Cambridge Analytica allegedly took information on 87 million users without their consent

Facebook’s data scandal in which Cambridge Analytica allegedly took information on 87 million users without their consent

He added: ‘There are some bubble-like characteristics developing in the US tech sector which is partially being exacerbated by record levels of share buybacks this year.’  

Regulation is another potential stumbling block. 

Technology is the least-regulated industry sector, according to Hartnett, with just 27,000 regulations versus 215,000 for manufacturing and 128,000 for the financial sector, according to Michael Hartnett, Bank of America Merrill Lynch’s chief investment strategist. 

He said in a recent report that pending US and EU regulations could shave 4 per cent off the tech industry’s revenues.

The prospect for fresh government regulation on tech companies in the wake of Facebook’s data scandal in which Cambridge Analytica allegedly took information on 87 million users without their consent. 

Hartnett points to the falls suffered in the tobacco industry in 1992, the financial sector in 2010 after the financial crash and the biotech industry in 2015 to illustrate how regulation can lead to investment underperformance. 

It is also important to bear in mind that anyone with a simple S&P 500 tracker fund – those that seek to replicate the performance of a given index – already have significant exposure to tech stocks. These companies account for over a quarter of the index.

Over exposure to one sector would significantly dent your portfolio at times of underperformance.  

On a aside note, tech’s weighting in the index would almost half if you take the FAANG stocks out of the equations. It goes to show just how big these companies are.

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