‘Generalist’ technology funds register strong performance over past year – average returns of 39%

·        Only AI-focused funds outperformed broader technology funds over the last 12 months – and only marginally

‘Generalist’ technology funds have performed strongly over the last 12 months (year-end October 31) registering average returns of 39% and outperforming almost all specialist tech subsectors, shows research by leading asset management company, Bowmore Asset Management.

The high returns from general technology funds stem from their exposure to ‘Big Tech’ stocks such as Alphabet, Meta, Microsoft and NVIDIA. They have all benefitted from their focus on AI, which has been the biggest driver of share price growth in the tech industry over the past year.

Bowmore’s research shows that the only subsector of technology funds that have marginally outperformed the ‘generalist’ tech funds has been specific AI-focused funds at 41.5% return over the past year. 

Whilst AI specific investments have marginally outperformed generalist tech over the last year, they have underperformed over the last five –years – the annualised returns of AI funds sits at a much lower figure of 4.6%, compared to 15.7% for generalist tech funds over the same period.

Jonathan Webster Smith, Chief Investment Officer at Bowmore Asset Management says: “These figures show that investors don’t necessarily need to go into specialist and more risky parts of the tech sector to get great returns.”

“Generalist technology funds are not only some of the highest performing funds at the moment but also offer more downside protection than very early-stage tech companies. Over the last half-decade, it is the generalist tech funds that have delivered the best results in the technology sector.”

“Many investors are likely to be attracted to the high returns delivered by some specialist funds in areas like AI. It’s worth considering the volatility of areas of these smaller market segments, especially when stable returns can be delivered by more established and diversified tech funds.”

Of the eight categories of Exchange Traded Funds (ETFs) included in Bowmore’s research, only cleantech focused funds (-14.9%) are down over the last 12 months, whilst cybersecurity-focused funds (19.1%) have lagged behind the growth of generalist funds. 

Whilst cybersecurity funds have the second-best performance over the last five-years (13.1%), behind the generalist funds (15.7%), their performance appears to have plateaued. With some investors feeling that the cybersecurity market has reached maturity, another major wave of growth is seen as less likely. 

Adds Jonathan Webster-Smith: “Artificial intelligence has taken huge strides forward and the anticipation surrounding its future is reflected in the performance of related stocks. Performance has been so strong that you need to question whether share prices are sustainable.”

“Whilst AI-specific funds have had a great year, there is no guarantee that they will be as consistent in the longer term as the generalist funds have been.”

Returns of ETFs by category