Tech funds 'rallying off a trough,' Lipper says

Technology funds led equity funds in returns for the first four months of the year, according to Lipper.
MAY 04, 2009
Technology funds led equity funds in returns for the first four months of the year, according to Lipper. Of the top five best-performing equity funds through April 30, three represented the technology sector: the ProFunds Internet UltraSector ProFund (INPIX) and the ProFunds Mobile Telecommunications UltraSector ProFund (WCPIX), both offered by ProFunds of Bethesda, Md., which returned 41.09% and 62.16%, respectively; and the Direxion Technology Bull 3X (TYH), offered by Direxion Funds of Newton, Mass., which had a return of 38.12%. “Technology is coming off a pretty deep bottom,” said Jeff Tjornehoj, senior research analyst at Lipper Inc. of New York. “When people start to feel a bit more optimistic, the [stocks] that are beaten down the furthest show the best gains early on. They are rallying off a trough.” The two best-performing non-technology equity funds were: the iPath Dow Jones-AIG Copper Total Return Sub-Index ETN (JJC), offered by Barclays Bank PLC of London, which posted a return of 43.72%; and the Encompass Fund (ENCPX), a global multi-cap growth fund offered by Brick Asset Management Inc. of San Francisco, which had a return of 38.58%. On the fixed-income side, three of the five best performers were loan participation funds, which invest in corporate debt with a short maturity. The funds were: Eaton Vance Floating Rate (EIBLX), offered by Eaton Vance Corp. of Boston, which returned 24.76%; the John Hancock II Floating Rate Fund (JFIIX), offered by John Hancock Financial Services Inc. of Boston, which had a return of 18.92%; and The Hartford Floating Rate Fund (HFLAX), offered by The Hartford (Conn.) Financial Services Group Inc., with a return of 18.84%. In addition, the Security High Yield Fund (SIHAX), offered by Rydex Investments of Rockville, Md., had a return of 23.94%, and the Eaton Vance High Income Fund (EVHIX) had a return of 19.19%. “People realized that the biggest names in corporate America are not likely to default,” Mr. Tjornehoj said about the performance of the debt funds. In the third and fourth quarters of 2008, the value of the debt fell, he said. “People had anticipated high default rates in the high-yield bonds. Now they have a little more confidence. They are indicating that those dire estimates were a little too dire,” Mr. Tjornehoj said. Both the equity and fixed-income funds that led the lists are the most volatile in their categories, he added. “This is what happens at the margins when the broader market is recovering,” Mr. Tjornehoj said. “These volatile categories are going to put up double-digit growth over a short period of time. They are also the canaries in the coal mine when the market starts to turn as well.”

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