Tech funds - too risky?

itwasntme001

Probably the biggest risk going forward is regulations, particularly with FB, Google and Amazon.  In the shorter term you should probably expect some volatility if there is rotation out of the tech name into the more value parts of the market - perhaps as Virus fears go away due to vaccine etc.

The tech sector is nothing like the 2000 tech bubble.  The names today driving the tech market have decent earnings and growth.  Rightly or wrongly they are gaining a lot of market share of the global economy across a range of areas.

Personally I own both PCT and SMT which seem to compliment each other nicely as part of my overall allocation to growth tech equities.  No plans to sell them just yet.  SMT I like longer term and happy to ride out any drawdown.  I like their track record.  PCT I am less sure about and will probably be the first to sold off but not quite yet.  They form about 10% of my total 7 figure portfolio.  I am only in my 30s and do not need the money from these investments.  They also seem to be good hedges against a decline in real wages (since tech is a major driver of it).

[Deleted User]

Not sure "tech" is a meaningful term anymore. 
Certainly more than 50% of my portfolio.
As opposed to what?

Prism

ZingPowZing said:

Not sure "tech" is a meaningful term anymore. 
Certainly more than 50% of my portfolio.
As opposed to what?

Agreed, since Google, Amazon, Facebook, Netflix, Tencent, Alibaba are not officially tech whereas Apple, Microsoft and Cisco are.

bowlhead99

Prism said:

ZingPowZing said:

Not sure "tech" is a meaningful term anymore. 
Certainly more than 50% of my portfolio.
As opposed to what?

Agreed, since Google, Amazon, Facebook, Netflix, Tencent, Alibaba are not officially tech whereas Apple, Microsoft and Cisco are.

Really it just comes down to how you want to slice and dice and whose industry sectors and supersectors you use to map it all out.

Google (Alphabet) and Facebook and Tencent would be "Software & Computer Services" in FTSE's index, which falls under Technology.
But in MSCI's index they would be 'Communication' and lumped together with telecoms, video games companies, Disney and Netflix etc

Amazon and Alibaba would be General Retailers from FTSEs sectors while in MSCI's they would be under Consumer Discretionary along with car companies, Mcdonalds etc, but they certainly leverage lots of technology to run their operations just like Tesla build high tech cars using high tech components and production methods.  Sector pigeonholing is in the eye of the beholder!

steampowered

Personally, I think Tech retains enormous potential. While Tech valuations are very high, there are strong demographic tends which support continued growth in the sector.

On that basis I have a fair chunk of my portfolio (certainly not all!) in tech. While I think I am going to make more money than people who just have global trackers, that is a personal view of the markets - it is entirely possible that I could be wrong and things could go the other way. I am willing to take that risk; others might decide they are not.

Personally I would be investing more in venture capital funds and VCTs which focus on backing mid-sized growing tech companies, as I can see the scope for disruption there as having more potential for growth than continued growth in the share price of the large listed tech companies such as Apple, Google and Amazon. Though the risks are higher.

One of the interesting trends in Tech is that, while the largest tech companies are listed on stock markets, most large tech companies are privately held. A big chunk of the money going into tech comes from private equity funds rather than from IPOs. On that basis exposure to funds which invest in private companies is important if you genuinely believe in tech as a sector. Not to mention that on some of it you can claim VCT or EIS relief which is an instant 40% return on your investment if you are a higher rate taxpayer. Though those sorts of investments are higher risk.

[Deleted User]

bowlhead99 said:

Prism said:

ZingPowZing said:

Not sure "tech" is a meaningful term anymore. 
Certainly more than 50% of my portfolio.
As opposed to what?

Agreed, since Google, Amazon, Facebook, Netflix, Tencent, Alibaba are not officially tech whereas Apple, Microsoft and Cisco are.

Really it just comes down to how you want to slice and dice ..  Sector pigeonholing is in the eye of the beholder!

On the contrary, it is entirely in the eye of your fund manager, if that's how you choose to go.

Prism

ZingPowZing said:

bowlhead99 said:

Prism said:

ZingPowZing said:

Not sure "tech" is a meaningful term anymore. 
Certainly more than 50% of my portfolio.
As opposed to what?

Agreed, since Google, Amazon, Facebook, Netflix, Tencent, Alibaba are not officially tech whereas Apple, Microsoft and Cisco are.

Really it just comes down to how you want to slice and dice ..  Sector pigeonholing is in the eye of the beholder!

On the contrary, it is entirely in the eye of your fund manager, if that's how you choose to go.

I was referring to sector allocations from MCSI or FTSE which the fund manager has no influence over but may have to follow if the rules of their fund say so. Index funds just have to follow the sector allocation so a tech index fund that uses MCSI as its basis would not be invested in Google or Facebook. 

Individuals and non sector fund managers are free of such issues.

[Deleted User]

I was quoting bowlhead.
So which rules govern the fund under consideration? 
I suspect potential investors just see the word "tech."

Prism

ZingPowZing said:

I was quoting bowlhead.
So which rules govern the fund under consideration? 
I suspect potential investors just see the word "tech."

Ah, Bowlhead was quoting me and I was just adding that some fund managers and certainly index funds are not always invested in the stuff that you think they would be based upon the sectors that they follow. So if for example a fund stated that it invested at least 80% of its holdings into anything in the MCSI technology index they may struggle to include a meaningful allocation to Amazon, Google, Facebook and the like.

bowlhead99

Prism said:

ZingPowZing said:

I was quoting bowlhead.
So which rules govern the fund under consideration? 
I suspect potential investors just see the word "tech."

Ah, Bowlhead was quoting me and I was just adding that some fund managers and certainly index funds are not always invested in the stuff that you think they would be based upon the sectors that they follow. So if for example a fund stated that it invested at least 80% of its holdings into anything in the MCSI technology index they may struggle to include a meaningful allocation to Amazon, Google, Facebook and the like.

To answer ZPZ's question about "which rules govern the fund under consideration", the rules governing the fund are whatever rules or definitions they come up with to market the fund and say they'll stick to.

If the fund is (e.g.) Scottish Mortgage Investment Trust they may have a relatively unconstrained remit to invest in areas they believe offer growth potential and meet whatever criteria they say they'll follow, with some concentration limits but allowing for judgement and the conviction of the investment team to have a large influence on what they buy.  Whereas if they're an index tracker fund, they are basically trying to deliver the result of a portfolio that's been allocated in line with the specific index they say they are tracking, and  index investors would not want the product if they go off piste and deliver a materially different result - even if it's a better result.

If it's an index of a particular sector or region or both, they would define up front exactly what index it is that they are tracking or benchmarking (an MSCI one, a FTSE one etc) so that investors know what they are getting into when they buy it the fund and don't get any unwelcome surprises.

MSCI's World technology sector index has the following sub-sectors, for example: 
Technology Hardware, Storage & Peripherals 23.13% Systems Software 18.91% Data Processing & Outsourced Services 13.81% Semiconductors 13.43% Application Software 13% IT Consulting & Other Services 4.64% Semiconductor Equipment 3.64% Communications Equipment 2.85% Internet Services & Infrastructure 2.4% Electronic Equipment & Instruments 2.15% Electronic Components 1.41% Other 0.62%

Amazon is not a business that fits into any one of those sectors even though it gets involved in home automation, data centres etc. While Apple, Microsoft and Visa were over 40% of that index at the end of August. As that particular one is a developed world index rather than all-world index (i.e. excluding emerging markets) it has a very high allocation to US listed companies (87%).