The Fidelity global technology fund has rewarded investors since it’s inception. You will find that it outperforms most other benchmark index funds. This includes the highly regarded FTSE Global All Cap. It even beats the S&P 500! When it comes to an index such as the FTSE 100, there isn’t even a contest. So, what’s the catch, is there a reason to avoid the Fidelity Global Technology Fund W-Acc-GBP?
The past decade has been fertile economic soil for technology stocks. For nearly a decade, mega-cap technology leaders like Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL) havedominated the U.S. stock market. For the 10-year period from 2010 to 2021, revenue generated by tech giants compounded annually at a rate of 18%. This is to the extent that 5 mega-cap technology stocks made up around 22% of the S&P 500 at one stage. The big, question is why you should bother with more diversified funds such as the FTSE Global All Cap.
The fidelity global technology w acc gbp is clearly a huge performer. Whilst historical returns are no guarantee of future performance, it’s hard not to imagine technology stocks on an upward trajectory. The idea of Amazon or Microsoft faltering in the future is a challenging concept. The problem is that the tide is turning for technology stocks. So, is the Global Technology Fund [Fidelity] still a good investment?
Disclaimer: This is not financial advice and you are responsible for your own investment decisions. When investing, capital is at risk. This article may also contain affiliate links.
The ‘Exceptionalism Of Technology’ Is Over For The Stock Market.
According to Goldman Sachs, “that exceptionalism of technology is arguably behind us“. Valuations of the tetrad of mega-stocks have fallen significantly. Apple, Microsoft, Amazon, Apple, and Meta Platforms (META) have lost around $3 trillion in market value this year, according to Bloomberg data. David Kostin, the Goldman’s chief U.S. equity strategist, argues that
“Looking forward, the premium sales growth that was the characteristic most closely associated with mega-cap tech firms for the past decade has compressed dramatically”.
Kostin goes onto state:
“A year ago, these four technology giants traded at an enterprise value/sales multiple – a ratio that compares the value of a company to its sales – of 7x versus 4x for the rest of the companies in the S&P 500. The difference between these names and the broad market has narrowed to 4x compared to 2x.”
Their share in the S&P 500 has also fallen from 22% to 18% in just 12 months. Largely due to the technology sectors vulnerability to higher interest rates. This means, they have borne the brunt of the Fed-induced rout across U.S. equity markets in 2022.
Investors Call Time On FAANG Stocks
As a result, investors are calling time on FAANG stocks dominance after the NASDAQ rout. The fear of a recession means that investors scale back bets on growth stocks in exchange for profitability. As interest rates trend upwards, their valuations may correct further. This is because technology firms are high-growth orientated that depend on easy access to cheap credit needed to expand their business.
The last 2 decades have been easy feeding grounds for cheap credit with a base rate of near-zero across most developed nations. One of the reasons why there have been record numbers of unicorns. This interest rate is now being normalised to pre 2008, levels as inflation peaks to 40-year-highs. Meaning that the speculative era for technology stocks could be consigned to the history books.
According to Blackrock, “the changing economic landscape means that concepts such as bailouts and reducing the base rate, no longer apply. Therefore, you “have to consider that core stocks may outperform technology over the next 10 years for example”.
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Why Global Technology Funds Are Higher Risk
Chasing the returns of the past decade may be risky. Technology may continue to decline or have a resurgence. I personally, wouldn’t want to place a bet on either outcome. Alternatively, you can buy global tracker then you are betting on the growth of the global economy. You may see slower and more steady growth but this is more resistant to the shocks of any one sector. One of which might be a technology meltdown, much to the dismay of people who are investing in the fidelity global technology fund.
You could chase returns of the Global Technology Fund by Fidelity, and still be buying near the peak of technology. Then once this sector bursts, selling low to switch to the next fund that has been doing well, approaching its peak, and keep repeating this cycle. This is a popular but futile strategy amongst many retail investors and this erodes your returns. Buy high and sell low is the opposite of what people should be doing.
This includes not only the Fidelity Global Technology Fund. It also includes technology heavy funds such as the Fidelity Legal and General Global Technology fund and the T Row Technology Fund. For example, the Fidelity Legal & General Global Technology Index Trust has over 90% of it’s allocation in large cap stocks, this includes the likes of Meta. In fact, 56% of the L&G Technology fund is in these Large Cap growth stocks and will therefore be exposed to increased volatility.
But…Global Technology Funds Could Be Set For Second Boom
Climate change and labour shortages. Many of the problems faced by our economies will be so reliant on technological solutions. For example, labour shortages might be solved by artificial intelligence and robotics.
A number of businesses in the hospitality sector have shortened opening hours due to labour shortages. In response, one restaurant chain is now using “cat robot serves”. The surging cost of goods and services means that technology may also provide a cost saving both in salary required and improving speed or efficiency of service.
The Global Technology Fund Manager At Fidelity, Hyun Ho Sohn argues technology “offers unique growth opportunities with a host of interesting product cycles and innovations, it’s a dynamic sector where active investing can generate alpha. The technology sector also screens well on many traditional ESG metrics.”
This drive towards ESG may give technology stocks funding they require. As investment into the ESG industry continues to grow, more capital will be allocated to these growth stocks. So, which funds would see this drive in growth. What are the major players in Global Technology Funds?
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Fidelity Funds – Global Technology Fund W-Acc-GBP
The Global Technology Fund by Fidelity is a core global technology fund with around 80 holdings. It invests in a mixture of the familiar technology mega caps but also medium-sized and smaller companies as well. At least 50% of the fund’s holdings must be invested in sustainable companies. In fact, the asset allocation is somewhat biased to small and mid-caps. Stocks in the portfolio fall into one of three buckets.
The first is ‘Growth’, which typically makes up more than 50% of the portfolio. These companies will be long term structural winners with disruptive technology. The second bucket is cyclical companies which typically make up less than 30% of the portfolio and is focused on more capital-intensive cyclicals with stronger balance sheets.
The third and final bucket is ‘Special Situations’, which typically make up less than 30% of the portfolio. These are companies which are either severely undervalued or have an upcoming catalyst. Stocks are sold for one of four reasons:
- The stock has reached its price target and a review identifies no further upside.
- The investment thesis is broken; there is a better opportunity elsewhere.
- Environmental, social or governance issues (ESG) materially change the investment thesis.
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Fidelity Global Technology (W Acc GBP) Fund Price & Performance
The Global Technology Fund managed by Fidelity is a leading technology fund. It stands up well to it’s benchmark index and has outperformed it too date. Whilst it’s a more expensive fund, the additional fee for this active management has paid off.
Over 10 years the Fidelity Global Technology fund has returned 629% vs the Nasdaq 100’s 515%. As £1,000 investment would have returned £7,288 compared to £6,149 if you would have invested in a Nasdaq tracking fund (e.g. Shares NASDAQ 100)
T. Rowe Global Technology Fund Price & Review
The T. Rowe Price Funds OEIC Global Technology Equity Fund C GBP (TWTCA) fund into Morningstar’s technology category. Funds in this category generally buy stocks in the computer, semiconductor, software and internet sectors. The fund aims to increase the value of its shares through growth in the value of its investments. The fund is actively managed and invests mainly in a diversified portfolio of shares of technology development or utilisation companies.
The companies may be anywhere in the world, including emerging markets. Specifically, the fund invests at least 70% of total assets in shares and related securities of technology-focused companies, such as common stocks, preferred stocks, warrants, American Depository Receipts (ADRs), European Depository Receipts (EDRs) and Global Depository Receipts (GDRs).
The fund benchmarks against the MSCI ACWI/Information Technology NR USD. The fund is within the Technology and Technology Innovations sector and has a Morningstar category, the Sector Equity Technology.
T Rowe Global Technology Fund Performance
The T Rowe Global Technology fund surged in value following the Mar-20 crash. It soared ahead of it’s Morningstar Sector. Unfortunately, it went from hero to zero, falling from it’s peak in November 2021 and underperforming well-below its benchmark, the Nasdaq and other technology funds.
Whilst the T Rowe fund has a 5 years cumulative return of 12.82%, the Fidelity Global Technology fund stands at 129.58% and the iShares Nasdaq 100 ETF at 110.2%. One of the reasons for this is that the T Rowe Technology fund still had 7.44% of it’s portfolio weight in Tesla (Portfolio as of 30/09/2022). The fall in Tesla’s share price corresponds with the fall in the T Rowe Technology Fund price over this time period.
By contrast, Tesla doesn’t make it into the top 10 holdings for the Fidelity Global Technology fund Portfolio as of 31/10/2022). Which suggests that Fidelity fund manager made the call that Tesla was substantially overpriced. So how does the Fidelity Global Technology W acc GBP fund perform against the T Rowe Technology Fund?
T Rowe Global Technology Fund Price & Fees
The T Rowe Global Technology Fund also charges an ongoing fee of 1.02% and a transaction fee of 0.69%. This is in-line with the Fidelity Global Technology fund, which has an ongoing fee of 1.03% and a transaction fee of 0.56%. However, the fact the T Rowe Technology fund has significantly underperformed vs the Fidelity Technology fund, means it has a significantly higher cost ratio. The picture further worsened when you factor in that the iShares NASDAQ 100 UCITS ETF USD (Acc) (CNX1) has an ongoing fee of just 0.33% and no transaction fee.
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How To Invest In Niche Technological Sectors
There are also a number of niche areas where we know there are supply constraints. For example, the semi-conductor industry has been lagging. There is also a political push to move away from the dependence of Chinese chip making. This means that funds such as the Fidelity Technology W-Acc-GBP fund could be at the forefront of innovation.
The United States has invested a substantial amount of money to push it’s own semi-conductor industry forward. In August 2002, Biden signed the “Chips Bill”, unleashing funding for US production. In short, $52 billion will be poured into the US semi-conductor industry.
The changing pollical and economic landscape means that there are a number of niche technology funds which may be worth our consideration:
- iShares S&P 500 Information Technology Sector UCITS ETF Acc. IITU
- iShares Automation & Robotics UCITS ETF Acc. RBTX
- Invesco CoinShares Global Blockchain UCITS ETF Acc. BCHS
- L&G ROBO Global Robotics and Automation UCITS ETF Acc. ROBG
- L&G Artificial Intelligence UCITS ETF. AIAG
- WisdomTree Cloud Computing UCITS ETF USD Acc. KLWD
- Invesco Technology S&P US Select Sector UCITS ETF Acc. XLKQ
- VanEck Video Gaming and eSports UCITS ETF USD Acc. ESGB
- HANetf HAN-GINS Tech Megatrend Equal Weight UCITS ETF Acc. ITEP
- iShares Digitalisation UCITS ETF Acc. DGIT
- L&G Cyber Security UCITS ETF Acc. ISPY
- HANetf Emerging Markets Internet & Ecommerce UCITS ETF EMQP
These funds are all available on Freeshare.io: sign-up and receive a £10 freeshare with my referral link!
Conclusion: Sector Diversification Vs Global Technology Funds
Technology may be the solution to global supply chain restrictions. This would make global technology funds a great investment for the coming years. Especially when you consider the growing demand for technology such as semi-conductors. On the other hand, the cooling economy may mean less demand.
The demand for technology would then potentially fall. Consumers and businesses might not need or be able to spend money on technology. The earnings of technology companies would then fall, with it their share prices. The question is, which way do you think it will go? In the short-term a global technology fund will be a volatile investment. A 5 to 10 year investment in technology stocks is a high risk investment. A long-term 15-20 year perspective may see the current seedling and emerging technologies become profitable.
Technology Funds Focus On Developing Technologies
Global technology funds underweight the technology mega-caps. Individually these tend to make up more than 10% of the index. This bias towards mid and small caps by technology funds may actually decrease risk, even when compared to a regular global large-cap fund. Therefore, the technology risk presented above may be significantly lower than initially anticipated. However, it does not stop the fund from tracking an overweight or bubbled technology sector.
Whilst the bubble may have popped for technology stocks in 2022. The .com bubble may teach us one more valuable lesson. Whilst, the dot-com bubble is the result of excessive speculation of Internet-related companies in the late 1990s. The companies survived didn’t limp on but thrived in the new economy. One of these was the mega-cap we see today, Amazon.
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The Next Global Technology Epochs
Historically, we have witnessed investment technology trends as waves. In the 1990s and early 2000s, with adoption of the internet. Granted this turned into a bubble, but the aftermath has been incredible in terms of a cultural and economic revolution. This paved the way for products such as the smartphone and laptop and therefore Apple.
The invention of new products drives consumer demand. The efficiencies created by new technology reduces waste and cost. These are the fundamentals that allow the economy to grow. The next significant epoch of technology may be Artificial Intelligence and the metaverse. At this point it is too early to say what the fall-out from this will be. For example, ChatGPT has invented a chatbot that answers questions and writes essays.
Krishna Gade, CEO of AI model monitoring star-tup Fiddler, said “ChatGPT and related language technologies could lead to big “disruptions in web search,” an area long dominated by Google. This means that the technological giants we see today, may not be the ones we see tomorrow.
They may also be the companies that rise to dominance in the S&P 500, NASDAQ and Global ETFs such as the FTSE Global All Cap. Therefore, Global Technology Funds that have a bias towards smaller cap and mid cap technology stocks may be the ones to watch after all. The question is, are you willing to take the risk? If so, then either the Fidelity Global Technology fund or The iShares Nasdaq 100 Fund may be for you.
When investing capital is at risk.
