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EM fund tops tech sector after Facebook privacy blunder

Tech fund

Polunin Capital’s Luxcullence Polunin Emerging Markets Technology I has been the top performing technology fund since the news of Facebook’s privacy data breach scandal broke. The fund has returned 2.35% for the month of March, up 5.75% from its return in February.

The fund has its highest weightings in China, Taiwan, South Korea, and India companies. Its highest sector weightings were towards information technology and financials.

Fideuram’s New Economy Cap fund was the other top performer with a 1.34% return but it did not provide FE Analytics with any information on its weighting breakdown.

GAM Star Technology Institutional Accumulation fund returned third-best during March at -0.18%, followed by GAM Star Technology C fund at -0.27%, and FundPartner Solutions’ Protea Swiftsure Technology fund at -1.04%.

Returns by the bottom funds for March ranged from -7.47% to -6.82% for a month in which all of the funds were down at least 8% from February level when most had positive returns.

Sentiment swings

This result should not be surprising as investment strategists have been weighing up whether to reduce allocations to so called Faang companies and global tech stocks of late. Most of the funds mentioned above have heavy weightings towards US stocks.

After a series of data breach scandals the sector is now expected to come under increasing regulation which is likely to impact its earnings potential.

Bank of America Merrill Lynch’s (BoAML’s) latest investment strategy report cautioned investors on the vulnerability of tech firms to increased regulation as well as taxation.

The bank cited excess returns and fancy valuations, bubbly prices, fat market caps, earnings pride, politics, wage disruption, tech being a cash-rich, tax-light sector, tech being the most lightly regulated sector, and waves of regulation leading to investment underperformance as reasons to decrease tech allocations.

Blackrock’s global chief investment strategist, Richard Turnill, agreed and said: “Worries that trade tensions and regulatory scrutiny could dent profitability have shaken confidence. We believe recent weakness reflects rising risks but is not a tech wreck in the making”.

“Enthusiasm for the sector is now facing a test. Trade tensions between the US and China centre on key issues for the tech sector: intellectual property, technology transfers, market access, and investment restrictions,” he said.

“A series of unrelated, high-profile scandals from data breaches to self-driving car accidents has raised the spectre of more stringent regulatory scrutiny.”

Expert Investor’s sister publication, Portfolio Adviser reported on Wednesday that Rathbones had removed their entire Facebook holdings in their UK-domiciled Global Opportunities fund.

In the long term

Turnill did note that that strong fundamentals still underpinned his firm’s preference for the tech sector.

Looking at FE Analytics data, the top fund for the three years to 31 March 2018 was Polar Capital’s Global Technology fund that returned 57.4%. It was also the top fund for past five years at 161%.

The fund’s top holdings come from Microsoft, Apple, Facebook, and Alphabet, and 67.7% of its holdings came from North American stocks.

UBS’ Equity Global Multi Tech fund followed at 49.82% for the three years to 31 March 2018, Fidelity Global Technology A and Blackrock Global Funds World Technology A2 fund both at 49.56%, and Janus Henderson Global Technology A Accumulation at 46.86%.

All of these funds had their highest weightings towards North American tech stocks.

The funds analysed were found using FE Analytics FCA Recognised and Offshore Mutual universes that were domiciled in either Luxembourg or Ireland.

Jassmyn Goh

Jassmyn reported from Sydney to New York to Jakarta before joining Expert Investor. She was most recently Features Editor at Money Management and Super Review in Sydney.

Part of the Mark Allen Group.