The best technology funds to invest in
How and where to invest
Investors seeking a technology fund have only a limited number to choose from, but it is not essential to have a specialist fund: many global funds also have significant technology holdings.
Two of the technology funds - Legal & General Global Technology Index and Close FTSE techMARK - are index trackers. For most investors, however, an actively managed fund - assuming the manager is suitably skilled - is preferable, given the rapid change in both the hot technology areas and the fortunes of tech companies.
Also, the lack of technology companies in the UK means the Close fund's top three holdings are BAE Systems, Shire and Smith & Nephew - not the kind of companies technology investors will usually seek out.
Among the actively managed technology funds, the five-year record varies sharply with the worst - GLG Technology - rising just half as much as the best, AXA Framlington Global Technology.
The AXA fund is the preferred choice of Gavin Haynes, managing director of Whitechurch Securities, and he also likes Ben Rogoff's Polar Capital Technology investment trust.
Tim Cockerill, head of collectives research at Ashcourt Rowan, also plumps for Polar Capital Technology but picks Henderson Global Technology among the open-ended funds.
Often overlooked is Herald Investment Trust, in a sector on its own - small media, communications and IT companies.
As the name suggests, it is a small company specialist with a UK remit, although manager Katie Potts is also allowed some overseas exposure.
While the UK focus may seem a handicap, she has not let it hold her back. The 31.7% rise over 10 years puts it well ahead of its rivals, as Potts has taken early stakes in some of the fastest-growing tech companies, such as ARM Holdings.
Despite the good performance, the trust's shares stand on an 18% discount, well above that of the Polar and RCM investment trusts, which makes it look a bargain.
This article was taken from the May 2011 issue of Money Observer.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.