What's behind the techno fund frenzy?
Australian fund managers are beginning to cash in on investor exuberance in technology-related stocks. Jason Spits wraps up the dash for cash run by our biggest fund managers in the pursuit of the technology dollar.
Australian fund managers are beginning to cash in on investor exuberance in technology-related stocks. Jason Spits wraps up the dash for cash run by our biggest fund managers in the pursuit of the technology dollar.
Chris Cuffe is understandably chuffed with Colonial First State’s latest fund launch. Since the prospectus rolled off the printers less than four months ago, Colonial’s Global Technology and Communications Fund has amassed $140 million under management.
While a good deal of that money has come from the meteoric performance of the fund (about 80 per cent growth since launch), most of the growth has been the result of launching the right product at the right moment.
The Colonial First State managing director says investors are finding it hard to avoid technology and keen to pick up on its success.
"This sector is in your face daily, it is used and advertised which has raised awareness of it and the ongoing technology revolution has increased the attraction of technology," Cuffe says.
"Technology and telecommunication has effects on everyone all the way down to the person on the street, evidenced by kids speaking a new language and people becoming involved in Internet and day trading.
"A person would have to be deaf, dumb and blind not to see the impact," Cuffe says.
Other fund managers have not been sitting back idly watching Colonial’s success. At least two, AMP and BT Funds Management, have been busy putting together launch strategies for their own technology based funds hoping to ride the rollercoaster pushed by Colonial. AMP and BTFM both launched funds last week and a whole host of others are set to launch in coming weeks including ANZ, Zurich, Schroders and Platinum.
And Colonial were also not strictly the first fund manager on the technology block. One of the first to offer a technology fund was Gresham Technology Management with a listed fund which entered the ASX in October last year. The fund is managed by Paul Davies and the TechInvest group and has 4300 retail investors, according to Gresham chair James Graham.
"The reason we launched this fund was the emerging growth in value stocks in technology which was difficult to access without the proper knowledge," Graham says.
BTFM executive vice president Rob Coombe says there is a developing appetite for technology funds and points to the US experience. In the US, technology based stocks account for 15 per cent of inflows and about 4 per cent of funds under management.
"We readily admit this is a bandwagon approach with more pull for the product than push, which is part of a limited market existing in Australia in not only technology stocks but also in technology funds," Coombe says.
AMP subsidiary Henderson Investors technology investment director Brian Ashford-Russell says the demand is also indicative of a growing maturity among investors.
"If there is a wish to be a serious investor, then there is a need to see technology as part of that. As a fund manager we have been fairly evangelical about it and until two years ago it was like banging your head into a wall," Ashford-Russell says.
"Attitudes have changed dramatically as technology becomes a key part of the new economy. Technology funds are now selling the need for a specific approach as generalists don't have the time to invest in such a dynamic industry," Ashford-Russell says.
In positioning these funds in the market, fund managers are also fighting the perception that technology stocks are recently floated Internet and large telecommunication groups.
In reality, the average fund tends to have a wider focus. For example, only about 7 per cent of Colonial’s fund involves Internet companies.
The funds tend to invest in infrastructure and component suppliers, hardware and software manufacturers, consulting and computer services and other parts of the industry which themselves drive the new technology based business environment.
This view has been hidden by the publicity which the Internet receives, according to BTFM TIME (telecommunications, IT and media enterprises) fund portfolio manager David Mills.
"The Internet companies are about 2 per cent of the total benchmark yet the risk is that people see technology as a dot com investment," Mills says.
"The biggest technology companies in the world, such as IBM (computers), Microsoft (software) and Intel (computer chips), have been around for more than just the past two years and so it is possible to get returns from real world technology based companies."
The same approach has also been adopted by Hendersons with their long running fund says Ashford-Russell.
Yet even with the widening nature of investments and increase in the number of funds investors should not be too cocky about returns or the state of the market.
"The Internet has enfranchised a new generation of investors who want growth and can identify with technology. They are making qualitative judgements and lead professional
investors but still need to return to the basics of accepting volatility and settling in for the long term," Ashford-Russell says.
"I think it is important for people to reset expectations because we can't expect these high returns annually. What worries me is the media attention on a limited part of the sector as many of these will end as a black hole, there will be a few big winners but sadly many will disappear."
Basically what is required is an old economy approach to a new economy investment for both investors and fund managers.
"There is still a certain amount of volatility in technology stock and they, like other funds, are geared towards people with longer term investment horizons," Cuffe says.
"Yet the pace of growth and change in this sector is unlikely to halt but will evolve over many years with big winners and losers. Our job is to still be a stock picker and find those who will adapt themselves for survival."
Local fund managers:
Colonial First State - Global Technology and Communications Fund
AMP - Global Technology Fund
BT - TIME Fund
US-based mutual funds:
Alliance Capital - Alliance Technology Fund
Merrill Lynch - Global Technology Fund
Listed fund:
Gresham Technology Management - Technology Investment Fund
Coming soon:
ANZ
Zurich
Schroders
Platinum
AUTHOR
Jason Spits
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