How Tech Funds Performed in the Covid-19 Crisis

Backing trending technology stocks has reaped rewards in recent weeks, but tech funds are still not immune to the market sell-off 

Annalisa Esposito 07/04/2020 15:05:00

netflix

Lockdown measures put in place to deal with the coronavirus have fundamentally changed our everyday habits and social behaviours - and tech firms are poised to benefit. Since the outbreak, apps and software have now become a vital part of our daily lives, enabling people to work from home and stay in touch with loved ones.

Whether it's conference calls while the office is closed or accessing online fitness classes while gyms are shut down, the move online has been fast and widespread. So, how are tech funds faring against this backdrop? 

While the best technology funds have not been immune to the stock market sell-off of recent weeks, Morningstar Direct data shows they have held up relatively well compared to the market as a whole. While the FTSE 100 and S&P 500 plunged more than 20%, the strongest tech funds are down as little as 4.6% year to date. We have looked at funds that belong to the Morningstar equity technology sector, that are available for sale in the UK and have more than £150 million in assets under management.

Fund YTD Return (%) 5-Year Annualised Return (%) Morningstar Rating
Polar Capital Global Tech  -4.56 24.60 5 Stars 
T. Rowe Price Gbl Tech Eq -5.97 N/A 5 Stars 
JSS Sustainable Eqty Tech -6.35 N/A N/A
Janus Henderson Gbl Tech -7.04 21.40 N/A
BGF World Technology -7.27 23.60 5 Stars 

Source: Morningstar Direct. April 2, 2020. 

Top of the leaderboard is the Polar Capital Global Technology fund, which has attracted a steady stream of inflows in recent years as tech stocks have soared. Indeed, the fund has produced impressive annualised returns of 20.6% over five years. “We have a high opinion of their portfolio-management experience and knowledge of the sector and stocks, assisted by a very well-resourced, dedicated technology analyst team,” says Morningstar analyst Samuel Meakin.

A focus on small-cap companies has helped boost performance, as these shares have the potential to grow at a much faster rate than their larger counterparts - but only if you pick the right ones. Of course, the Silver-Rated funds doesn't ignore the giants of the sector and top holdings include Microsoft, Apple and Alibaba. 

But among the major contributors to the fund's performance are lesser-known names such as Everbridge (EVBG), Nvidia (NVDA) and RingCentral (RNG), which were up 36%, 12% and 25% respectively in the last quarter. Everbridge, which sells communications services for emergencies, has sent more than 15 million messages in recent weeks for companies trying to communicate with their customers. The firm was founded after 9/11 to coordinate companies in times of crisis and is currently helping many cities cancel public events, and firms to tell employees they should work from home.

everbridge

Nvidia is a California-based graphics chip maker which is used in gaming, mobile computing and the automative industry. Its share price shot upward, fuelled by the insatiable demand for better 3D graphics – a trend not exclusively connected to the Coronavirus.

Meanwhile, RingCentral is a cloud provider for businesses, which rents space in data centres to provide voice, chat, conferencing and application integration. Morningstar analysts rate the stock with four stars as it trades under its fair value.

In second position is the Neutral-Rated T. Rowe Price Global Tech Equity, down 6% year to date. Its portfolio is the epitome of the social trends that have been magnified by the coronavirus, with top contributors to performance including Netflix, Zoom, Shopify and Slack – their shares climbed 24%, 129.5%, 11.2% and 27.6% respectively in the first quarter of the year.

The performance of Zoom (ZM) and Slack (WORK) has soared as home working has becoming commonplace, with digital meetings replacing face-to-face interactions. Amazon and Shopify, meanwhile, benefit as households on lockdown rely on e-commerce sites to get items delivered to their door.

A surge in film streaming as stay-at-home replaces socialising has boosted Amazon (AMZN) and Netflix (NFLX), both of which have had to reduce the quality of streaming to lessen the strain put on internet infrastructure for them to cope with the surge in traffic. Netflix, like Zoom, is rated one star by Morningstar analysts because they trade over their fair value.

Worst Performing Tech Funds 

Of course not all the tech funds have been able to buck the market trend. The two-star rated Edmond de Rothschild Big Data fund, for example, is down more than 20% year to date. Its main detractors from performance have been stakes Schlumberger and Criteo, whose shares have fallen 65.3 and 53% respectively. The fund had a big stake in them, which were 3.3% and 2.6% of the portfolio.

Schlumberger (SCL), which accounts for 3.3% of the fund's portfolio, is a provider of technology for the oil sector and was hit hard as the oil price collapsed in March. Paris-headquarted Criteo (CRTO), meanwhile, provides advertising technology solutions. In essence, it personalises online display advertisements to consumers who have previously visited the advertiser's website. Its shares fell as the company reported a fall in revenue, and there are concerns that many companies will cut back on advertising in the months ahead.

The fund has also a large tilt towards financial services (20.1% of its assets), a sector that has been hit by coronavirus pandemic. Investments in Dutch commercial bank ABN Amro Bank (ABN) and Spanish Banco Santander, (BNC) as well as investment bank JPMorgan Chase & Co. (JPM) have all weighed on performance in recent weeks. 

Fund YTD Return (%) 5-Year Annualised Return (%) Morningstar Rating
JPM Europe Dynamic Tech -20.97 16.50 3 Stars
EdRF Big Data -20.47 N/A 2 Stars
UBS EF Tech Opp  -19.09 22.20 4 Stars
Robeco Global FinTech Equities  -18.57 N/A N/A
CS Robotics Equity -17.69 N/A 3 Stars

Source: Morningstar Direct. April 2, 2020. 

About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk

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