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Science, tech funds rebound

INVESTMENT REPORTER

Mutual funds that invest in science and technology stocks rebounded sharply in October as investors bought some of the sector's most beaten-down names.

Funds in the category posted an average gain of 13.6 per cent last month to shave their one-year loss to 33.9 per cent. The Nasdaq Stock Market's tech-laden composite index climbed 13 per cent last month.

Observers said investors flocked to tech stocks despite lacklustre profits because many expect the sector to lead again, as it did during the 1990s bull market.

Among the top performers in October, the $29.0-million iUnits S&P/TSE Canadian Information Technology index fund soared 30.3 per cent, the $1.5-million Sentry Focused Technologies Fund advanced 21.5 per cent, and the $1.9-million Maestral Technology & Telecommunications Fund jumped 19.3 per cent. The $10.6-million R Techno-Media Fund rose 18.8 per cent, the $2.6-million ING Global Communications Fund climbed 18.4 per cent, and the $1.1-million Caldwell Technology Fund gained 18 per cent.

Brendan Caldwell, president of Caldwell Securities Ltd., said he believes many investors were bottom-fishing among technology stocks last month.

Mr. Caldwell said some high-tech companies, such as Nortel Networks Corp. and Lucent Technologies Inc., were being valued as if bankruptcy was imminent. For "Nortel, there was something of a death watch on."

But in October, investors began to dip into Nortel shares again -- driving the stock up as much as 18 per cent in one day -- as fears of a liquidity crunch began to abate.

The Caldwell fund added to positions in the stock, Mr. Caldwell said, and by the end of the month, Nortel shares had soared 163 per cent from the start of the month.

Looking to U.S. tech shares, Mr. Caldwell said Electronic Data Systems Corp. enjoyed some healthy one-day gains, and the fund was able to add to returns by turning over positions quickly.

He added that some tech stocks had been unfairly taken down in earlier months by investors who were worried about the troubles plaguing the rest of the sector.

Cisco Systems Inc., for example, has no debt and cash on the balance sheet. "It's very hard to go bankrupt if you don't owe anybody anything," he said. Cisco shares jumped 40.7 per cent during October.

The broader market also roared back in October. The Standard & Poor's 500-stock index saw a 9 per cent gain in the month. The Dow Jones industrial average rose 10.6 per cent last month to finish a stellar October at 8,397.03 and tally the second-best performance for the month in the 106-year history of the index.

Market watchers said investors were shrugging off bad economic data and looking more optimistically at the North American economy's prospects.

In the Canadian stock market, a slump in heavily weighted bank stocks helped hold back the Toronto Stock Exchange's rally toward the end of the month. The S&P/TSX composite index rose a tepid 1.1 per cent in October to finish at 6,248.79. Canadian equity funds edged up 1.3 per cent in October to trim their one-year loss to 6.8 per cent.

Top gainers included the $1.1-million Caldwell Canada Fund, up 10 per cent, the $5.9-million Brandes Canadian Equity Fund, which gained 6.1 per cent, and the $1.9-billion AIC Advantage II Fund, up 5.5 per cent.

Canadian large-capitalization equity funds finished the month almost flat. Among the better performers, the $1.1-million Mavrix Canadian Strategic Equity Fund gained 8.9 per cent, the $279.9-million Renaissance Canadian Growth Fund rose 5.7 per cent and the $1.1-billion McLean Budden Canadian Equity Growth Fund advanced 4.8 per cent.

Canadian small-capitalization funds also remained nearly flat. The group's one-year rise is an average of 5.4 per cent. The $22.6-million Synergy Canadian Small Cap Class Fund rose 6.8 per cent, the $65.5-million Northwest Specialty Equity Fund gained 4.9 per cent and the $1.2-million Mavrix Emerging Companies Fund added 4.7 per cent.

Latin American equity funds also reversed their slide of recent months and rose an average of 9.9 per cent in October. The group's loss for one year is now an average of 13 per cent.

The election last month of a new president in Brazil, South America's largest economy, brought some calm to markets there after months of turbulence.

The $3.6-million StrategicNova Latin America Fund soared 10.9 per cent, the $18.4-million Fidelity Latin America-A Fund jumped 10.9 per cent and the $21.8-million TD Latin American Growth Fund gained 10.1 per cent.

Funds that invest in precious metals were the biggest losers in October, with an average slide of 9 per cent. Despite the pullback, the one-year gain for the group still stands at a whopping 46.3 per cent.

© 2007 The Globe and Mail. All rights reserved.

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