Henderson tech funds downgraded as passives outperform

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Two Henderson tech funds have been downgraded by Morningstar in the face of increasing competition from passives in the space, while high charges in the sector compound the appeal of low-cost alternatives.

The Henderson Global Technology and Horizon Global Technology funds, both managed by Stuart O’Gorman, have been downgraded to neutral.

They previously held a silver rating.

Morningstar analyst Samuel Meakin says the funds have had a challenging time versus the index over the past one, three and five years.

Additionally, there was team turnover in 2013 and 2014.

The Global Technology fund has returned 19.4, 60.9 and 111.1 per cent over the respective one, three and five year periods. The MSCI ACWI/Information Technology GR USD has returned 25.8 per cent, 76.8 per cent and 134.1 per cent.

For the Horizon Global Technology fund, returns over one, three and five years have been 19.1, 61.4 and 106.4 per cent. Its benchmark, the MSCI ACWI/Information Technology NR USD, has also outperformed over all periods – returning 25.3, 74.4 and 129.1 per cent.

Meakin points out that active technology funds in the last three, five and 10 years have underperformed the index on average.

AJ Bell head of fund selection Ryan Hughes says he likes the Polar Capital Technology fund, but agrees that it has been difficult for active funds in the sector to outperform.

Hughes adds that charges in the sector are high compared to regular equity funds, due to being regarded as a specialist sector, but he argues this is becoming increasingly hard to justify.

The Henderson Global Technology fund charge 0.85 per cent for ongoing charges, while Polar Capital’s management fee is 1 per cent of net assets up to £800m and 0.85 per cent on assets over £800m.

The Henderson Horizon Global Technology fund, a Sicav, charges 1.29 per cent.

Apple, Alphabet, Amazon and Facebook have dominated performance in the index over the last 18 months, but their size limits managers from taking a meaningful overweight position, Hughes says.

Polar Capital has been able to outperform by investing low down the market-cap scale, he says.

For passive exposure to technology, Hughes highlights the iShares S&P 500 Information Technology Sector UCITS ETF. Its OCF is 0.15 per cent.