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Tech wobbles, but funds could still grow strongly

Technology funds offer the prospect for high growth but come with a hefty dose of risk
Tech wobbles, but funds could still grow strongly

The top contributors to the S&P 500's gains this year have been the so-called FAANGs - Facebook (US:FB), Amazon (US:AMZN), Apple (US:AAPL), Netflix (US:NFLX) and Google, known as Alphabet (US:GOOGL), along with Microsoft (US:MSFT). And Technology and Telecommunications was the best performing Investment Association (IA) fund sector over the month to 30 May 2017, with an average return of almost 6 per cent. However, there was a sharp sell-off in US tech stocks at the end off last week, wiping $140bn (£110.05bn) from the value of US tech stocks on 9 June.

The valuations of technology companies, particularly in the US, had been looking expensive for a while. "Technology stocks have been rallying aggressively in recent times as momentum-chasing speculators bought [the FAANGs]," explains Fawad Razaqzada, a market analyst at Forex.com. "These and a few other stocks have been holding up the entire US stock markets. But such bullish runs often end abruptly and that is what may have happened. The writing was on the wall. Insider selling from the likes of Jeff Bezos, chief executive officer of Amazon, is never a good sign. The eye-catching gains prompted analysts to label the whole sector as the most overweight it has ever been, surpassing even the dotcom bubble."

It is unclear whether the sell-off will continue, or whether it is just profit-taking after a particularly strong run by the sector. But Jeremy Gleeson, manager of AXA Framlington Global Technology Fund (GB00B4W52V57), points out that in the first quarter of the year, 68 per cent of tech companies in the MSCI World Index reported better than forecast revenue, and 72 per cent reported a positive upside to predicted earnings.

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