Frankly, I’m worried about this country’s technology fund managers.
They own computer companies in their funds, but I’ve been wondering if they own computers.
And I would imagine that many other folks (i.e. investors) are also wondering the same thing while watching their incredible shrinking tech portfolios (disclosure: I own a computer, but do not own a tech fund).
The computer is known to be quite useful as a research tool, and, if your tech fund manager doesn’t own one, you may want to suggest your agent invest some of those exorbitant management fees into these new-fangled contraptions.
Well, whatever it is, something’s got to be holding this motley crew back.
According to research at Morningstar (www.morningstar.ca), Canada’s science and technology funds are flunking the ultimate test.
Most can’t even keep pace with the tech-laden Nasdaq composite index and that’s what investors are paying them to do. To beat the index. At the very least.
Morningstar’s research of 20 Canadian science and tech funds with five-year histories shows that only three outperformed the Nasdaq. And during that five-year period (through July 31), the Nasdaq was down 11.5 per cent.
Kudos to the three that beat the Nasdaq. They were the Dynamic Canadian Technology Fund, the TD Entertainment and Communications Fund and the Trans IMS Canadian Communications Fund.
When you scan the top holdings of some of these badly underachieving funds, it looks like they did their stock picking with their eyes closed.
Many of these funds feature top holdings that are all marquee names in high tech.
And that can be a recipe for disaster.
For example, the Investors Group Global Science & Technology Fund was down about 3.5 per cent for the 12 months through July 31 while the Nasdaq gained 1.5 per cent (only 47 of 106 funds outperformed Nasdaq during that period).
The top holdings in the Investors Global Science & Technology Fund include virtually all of the big Nasdaq high-tech names, including Microsoft (MSFT), Dell (DELL), Cisco (CSCO), Intel (INTC) and Oracle (ORCL).
In the tech game, the big winners are the portfolio managers who avoid the crowd and dig deep to unearth the diamonds in the rough.
Howard Sutton is one of those tech fund managers, and apparently he owns a computer. The portfolio manager of Tera Capital (www.teracap.com) was feverishly pounding on it the last time we called and asked for his Pro’s 3 Stars for the Edge.
Sutton’s Tera Capital Global Technology Fund boasted a 12-month return of 54 per cent through July.
It’s interesting to note that the fund only shows one household name, Yahoo, in its top 10 holdings while featuring obscure names such as DRC Technology, Wavecom, Ramtron International and Arena Pharmaceuticals.
However, just because Sutton is on a roll, that doesn’t mean you should automatically run out and invest in his fund.
In fact, a hot fund manager is often a red flag that his fund could be ripe for a nasty correction, particularly with the wildly volatile tech funds.
As for the herd of tech fund managers who tend to follow each other around and wind up with embarrassing returns, we think they need to get out more and start investing in stocks that aren’t on everybody’s radar.
Or, failing that, they should at least lower their management expense ratios to reflect their disgraceful performance.
* THE REAL McCOY: More often than not, the best stock picks are the least sexy names. They reek with boredom. They are bland names in humdrum businesses in unloved sectors.
McCoy Bros. (MCB-TSX) is such a name.
A year ago, Edmonton-based McCoy, an 88-year-old company, was a down- and-out penny stock in the trucking business that few investors wanted anything to do with.
Today, McCoy is the real McCoy of Canadian stocks, with a 485-per-cent return year to date after a dramatic turnaround of the company’s operations.
In its last quarter through June 30, McCoy earned $467,573 or three cents a share compared to $202,211 or one cent a share in the year-ago period.
The stock recently traded at $1.85 after peaking at $1.99. The 485-per-cent return is the sexiest return on the TSX this year among stocks over $1.
McCoy, headed by CEO Jim Rakievich, is currently in the process of acquiring Peerless Ltd., a manufacturer of truck-trailers.
* SAGE WORDS: “Any time you try to predict commodity prices, you’re likely to have your head handed to you on a platter.”
– Calgary fund manager Martin Ferguson
HOT STOCK: Forbes Medi-Tech
FMI-TSX $3 Up 70 cents (+30.4%) on 1.45 million shares For week ending September 10 If you’ve been off hunting elephants in Eritrea during the past few months, a $3-share price may not be enough to have you turning cartwheels, but it’s something for shareholders who had a front-row seat in April to watch this stock’s implosion from $11.47. The Vancouver biotech firm popped when it reaffirmed its standing as a significant player in the cholesterol-treatment field with a $24.4-million sales agreement.
COLD STOCK: Forbes Medi-Tech
NSU-TSX $2.37 Down $1.61 (-40%) on 11.47 million shares For week ending September 10 These days in the mining game, you can announce a 10-million-ounce gold discovery and have the market blow you off. Bad news is a different story and Vancouver-based Nevsun, which 11 months ago peaked at $9.25, found a sure way to get the market’s attention, announcing that the Eritrean government in Africa had ordered a halt of operations at its gold and-base-metals mine for unexplained reasons.
(Gyle Konotopetz can be reached gyle@businessedge.ca)
