TMT fund sector is the standout performer

Asset Class in Focus

The tech sector has posted the best absolute and risk-adjusted returns during the past three years, despite its headline-grabbing volatility.

Investors who kept faith in the tech sector to enrich their lives have been rewarded literally as well as figuratively. Specialist TMT (technology, media , telecommunications) funds have far out-performed all other equity sectors since March 2016, in spite of controversies surrounding some leading US tech firms, a plunge in the value of China’s heavyweights last year and amid concerns that the next stage of the Sino-US trade dispute might be a tech conflict with tit-for-tat exclusions and sanctions.

However, belief that innovative technology will continue to transform our lives, spurring demand for new products and services, sustained the strong performance by funds dedicated to tech.

The average three-year cumulative return of TMT funds authorised by Hong Kong’s Securities and Futures Commission is 60.45%, well ahead of the next best performers — North America and Greater China funds, whose average returns are 39.25% and 37.19% respectively, according FE data.

The preeminent fund is both tech- and North America-focused. The JP Morgan US Technology Fund posted a 126.34% return from 26 March 2016 to 22 March 2019, with major allocations to Alphabet, Salesforce and Microsoft, but it doesn’t have Apple, Amazon or Facebook among its top ten holdings.

The Blackrock GF World Technology Fund is the next best TMT performer with a three-year cumulative return of 112.67%, followed by the Janus Henderson Global Technology Fund with 103.86%. Neither fund has a significant allocation to Facebook.

All three funds had to cope with greater volatility than the TMT sector average, but each of them achieved higher Sharpe ratios – which indicate superior risk-adjusted returns. Their annualised volatilities (and Sharpe ratios in parenthesis) were as follows: JP Morgan: 19.12% (1.45), Blackrock: 17.63% (1.42) and Janus Henderson: 15.74% (1.48).

The fund sectors with the worst three-year cumulative performances are Korea (5.94%), Energy (9.58%) and Commodities (15.04%). The Korean market is dominated by export-driven conglomerates, which makes it particularly susceptible to world trade (and sentiment).

The energy and commodities sectors also took a hit as China’s growth rate declined and amid fears of weakening global economic activity in the second half of 2018.


Best Performing Sectors, 3 years

Sector

Annualised Return %

Volatility %*Sharpe RatioPositive weeks

Negative weeks

TMT

17.07

15.020.9097

59

North America

11.67

12.260.6791

65

Greater China

11.11

16.660.4691

65

Worst Performing Sectors, 3 years

Sector

Annualised Return %

Volatility %*Sharpe RatioPositive weeks

Negative weeks

Korea

1.94

15.190.0079

77

Energy

3.10

15.730.0083

73

Commodity

4.78

18.580.0785

71

*The higher a fund’s Sharpe ration, the better its risk-adjusted performance.
Source: FE Analytics. Measurements are from 26 Mar 2016 – 22 Mar 2019 and in US dollars.

Cumulative performance of equity market categories

Source: FE Analytics. Three-year cumulative performances of Hong Kong SFC-authorised fund sector averages in US dollars.

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