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Are tech funds set for lift off again?

When Odysseus sailed past the Sirens, he asked to be tied to the mast to resist their tempting song.

Today, some big names in fund management are calling out that now is the time to get back into technology. But will retail investors who lost money in the crash ever trust them again?

Brian Ashford-Russell, director of the Polar Capital technology trust, made his reputation running the Henderson Global technology fund before setting up Polar Capital at the end of 1996. The share price rose from 89p to 436p at the height of the technology boom in 2000. It fell to 120.5p in 2003 before improving to 165.5p today.

Last week, shareholders voted against winding up Polar Capital in 2006, after Ashford-Russell called for patience. He believes the sector is within 18 months of a turning point, which will see an extended period of outperformance.

Ashford-Russell says: “It is not surprising people were burnt in the technology crash because they were coming to the party so late. We put out a warning in October 1999, saying valuations were extraordinarily high, and money just poured in, in larger quantities that in the previous 15 years in the UK. I can understand why people are depressed and disillusioned with it.”

New Star select opportunities manager Patrick Evershed invested heavily in technology when he ran the special situations fund at Rathbones, reducing exposure at the very height of the bubble. The special sits fund is currently up by 100 per cent over five years compared with a sector average of 1.3 per cent. At New Star, Evershed has been increasing exposure to technology to between 30 and 40 per cent over the last two years.

Evershed says: “There are a phenomenal number of really good quality technology stocks coming to market. Numbers are so high that brokers have to keep cutting prices in order for shares to sell. But investing in the right stocks could see a doubling or tripling in value in two or three years. I am in technology because I think this is where money is to be made over the next two to three years.”

SG Asset Management technology fund co-manager Hugh Grieves says strength in consumer products such as LCD televisions, growth in corporate spending and upgrading of telecommunications to cope with voice and video data are trends which support the rise of technology in 2006. He understands that investors have long memories but says they only need to look around them to see the impact that technology has on their lives.

Buckles chief executive Nigel Speirs says he advised his clients to stay diversified throughout the technology boom, so most of them were not too badly hurt. He shares Grieves’ enthusiasm for technology but warns that increased competition for strong-selling consumer products like Apple’s iPod is driving down prices and profits.

Polar Capital senior fund manager Ben Rogoff says the trick is to invest in new technologies at the right time. He is a self-confessed technology enthusiast and bought an iPod four years ago but adds that he also bought four other widely-touted digital music players, now obsolete.

Rogoff says retail investors need not be enthusiastic about LCD televisions to buy technology funds as, if they were, market penetration of the products would be too great to reward early investment by fund managers.

Ashford-Russell says: “It helps to have a balance of enthusiasm and scepticism in our team. Fund managers are always enthusiasts for their own funds but timing an entry into technology is difficult. We suggest retail investors gain access to the sector through regular savings.”

Hargreaves Lansdown senior analyst Meera Patel is surprised to hear Ashford-Russell is so bullish on technology. She says many companies are not reinvesting sufficiently in their businesses.

Patel concedes that funds such as the Solus Eastern enterprise fund did well in April due to its bullishness on technology but warns that retail investors need to have their confidence restored.

She says: “The investment of Solus was specialised, particularly in products like LCD televisions. Clearly, Ashford-Russell is in a position to make such calls but I think until we see people recoup the losses they made since 2000, they will take some convincing before they pile money in.”

Alan Steel Asset Management consultant Alan Adam is advising clients to get into technology on the grounds that sentiment has never been lower, with redemptions rising at the end of 2004 as people waiting for the funds to recover finally gave up.

Adam says: “Five years ago, we steered clear, but the secret of investing is doing the opposite of what everybody else is doing. As nobody wants to touch technology for love nor money these days, we are actively recommending the New Star technology fund run by Mark Beale.”

Performance graphs since 2000 look like the edge of a cliff, settling into a flat sea. The wind feels to be picking up but it remains a brave sailor who will risk his boat in these waters.

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