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How tech funds stack up against the index

swon@globeandmail.com

What are we looking for?

Let's examine whether investing in a fund tracking the Nasdaq 100 is as good a way to get exposure to the technology sector as a similarly focused mutual fund. The Nasdaq 100 index is largely focused on the technology, telecommunications and biotechnology sectors.

The screen

We checked to see how science-and-technology equity funds fared over five years ended Sept. 30. Five years is a better sample than 10 years because many older funds closed after the technology bubble burst in 2000. U.S. dollar, segregated, pooled and duplicate versions of the funds were excluded.

What did we find?

Only five out of 17 funds beat the 2-per-cent annualized gain for the Nasdaq 100 index in Canadian dollars.

The top performer was Tera Capital Global Innovation Fund with an average annual return of 6.2 per cent. Unless investors were lucky enough to pick one of the handful of strong performers, they would have been better off in index funds tracking the Nasdaq. (They are typically found in the U.S. equity fund category.)

The iShares S&P/TSX Capped Information Technology ETF almost beat the index with an annualized 1.6-per-cent gain, but is only invested in five companies.

Outperformance can come at a price. Tera Capital Global Innovation, available to accredited investors with a minimum $50,000 investment, also charges a 20-per-cent performance fee that only kicks in when the fund surpasses its highest net asset value reached previously in an individual's account, said manager Howard Sutton. "We don't charge it unless the client makes money."

Public companies such as VIQ Solutions Inc. and Sandvine Inc. have contributed to the fund's performance in recent years as well as privately held software company Embotics Corp.

Most mutual funds in this sector hold names like Google, Apple and Intel, but "we provide added value and differentiation by entering into an area of the market that is not covered well," Mr. Sutton said.

Among typical mutual fund offerings, BMO Guardian Global Technology Classic was the best performer with an average annual return of 4.2 per cent. The fund, which is run by San Francisco-based Dresdner RCM Global Investors, invests in small-to-large company firms.

***

SCIENCE & TECHNOLOGY EQUITY FUNDS VERSUS THE NASDAQ 100 OVER FIVE YEARS

FundLatest MERAssets ($-mil)5-yr % rtn (Sept. 30)10-yr % rtn (Sept. 30)YTD % rtn (Sept. 30)2009 % rtn2008 % rtn2007 % rtn2006 % rtn2005 % rtn
Tera Capital Global Innovation4.4810.06.16-4.558.8219.36-40.4612.0747.4084.14
BMO GDN Gl Technology Classic2.250.34.19-6.5910.9136.89-34.648.137.777.11
Fidelity Global Telecommun-A2.712.13.64-3.904.52-1.24-23.268.3834.604.38
TD Science & Technology2.6895.72.95-11.043.9351.36-30.95-5.088.293.63
Mackenzie Univ Technology Class2.5548.02.14N/A7.5128.85-28.605.544.17-3.11
CI Glb Science & Technology Corp Cl2.3892.11.94-11.786.8952.40-26.01-14.7310.79-8.01
iShares S&P/TSX Cap Info Tech Idx0.5538.21.56N/A-4.3852.44-49.1410.6832.66-13.49
Fidelity Global Technology-A2.5911.50.67-10.78-0.8338.18-35.52-0.6011.403.70
Renaissance Global Sci & Tech2.9011.60.12-15.676.0636.35-28.03-9.926.572.14
Altamira Science & Technology2.3541.9-0.30-16.363.2923.34-29.814.394.86-1.23
CIBC Global Technology2.8832.8-0.40-16.176.1037.27-30.44-9.906.412.75
RBC Global Technology2.1516.0-0.71N/A9.2137.18-35.57-2.921.56-4.27
Investors Global Sci & Tech-A2.70140.7-0.79N/A-5.3439.98-36.714.676.34-7.34
Northwest Specialty Innovations2.5343.7-1.06N/A-13.3716.67-27.257.5816.452.48
RBC Life Science & Technology2.1090.3-1.63-13.253.5526.26-29.280.47-1.81-3.03
Investors Global Sci & Tech Class-A2.7212.7-2.53N/A-7.3133.38-36.553.105.75-7.67
BMO Global Science and Technology2.4737.5-6.05-11.56-4.1120.02-25.04-12.56-6.294.59
NASDAQ-1004.52-5.647.4053.54-41.8918.676.791.49
NASDAQ-100 ($ Cdn)2.04-9.175.6831.22-27.980.636.73-1.69
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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