FOOL'S EYE VIEW
What To Do With A Troubled Tech Fund

By Maynard Paton (TMFMayn)
February 27, 2002

Carburton Street, London -- Hands up if you bought into a technology fund two years ago. If you've got an arm raised, you're not alone. Allured by impressive past performance figures, thousands of investors managed to get a slice of the tech boom just before the bubble burst. If the techMARK 100 index is anything to go by, most tech funds will have fallen nearly 80% since March 2000.

So what should a tech fund investor do? Average down? Sell out and cut the losses? Or hold on?

As with most things to do with investment, there are no clear-cut answers. Different personal and financial circumstances mean there's no one-size-fits-all remedy for troubled tech fund investors. But there are a number of pointers that can help you make a decision.

1. Are you cut out for the stock market?

In hindsight, buying a tech fund in early 2000 wasn't the greatest of investment decisions. So the obvious question to ask yourself is "Am I actually cut out for the stock market and investment funds?". If you think you're not, then rather agonise over a poorly performing tech fund, you should look to the bigger picture.

If (as the tech investment implies) you don't have much experience of the stock market as yet, then maybe more straightforward investment alternatives would be a better bet. High interest deposit accounts and index trackers are good starting points for any 'switch'.

2. Switch into something more sensible?

After two years of suffering from techs, maybe you're thinking of selling out and swapping to something that's done well recently. Perhaps a corporate bond fund, a guaranteed stock market bond or a buy-to-let investment currently tickles your fancy.

Trouble is, given the stock market woe, all these types of products have gained much popularity of late. There is a definite sense of investment bandwagons starting to roll in these areas. Whatever you do, don't blindly jump from the tech fund frying pan into the 'high yield' fire. If you have been thinking about this sort of jump, re-read point 1.

3. Think long-term buy and hold?

Generally speaking, two years in the investment world is nothing. So you could be forgiven in thinking 'long-term buy and hold' will see you through the current tech turmoil.

Unfortunately, a long-term buy and hold strategy is only suitable for companies that ought to prosper over the long-term. And it goes without saying that many technology firms are in deep financial trouble at the moment. For the likes of Marconi (LSE: MONI), Energis (LSE: EGS), Baltimore (LSE: BLM) and the rest, just surviving over the long-term will be an achievement.

Although your tech fund may be selling at historically low levels, there's no guarantee it won't go any lower. So check out the shares that are held in your fund and what your fund manger is saying about them. (What do you mean you don't know what shares are held in your tech fund and who the fund manager is?)

If you find your fund manager concentrates on profitable, market-leading tech companies that should come through the downturn, then a long-term recovery could be on the cards. However, if you find your fund is stuffed full of profitless, indebted firms busy selling off their assets, then further trouble could be looming.

And if you can't determine the general quality of either the fund's holdings or its manager? Then go back to point 1.

4. What was the of size your investment?

Of course, all the worry over what to do with your tech fund should be set in proportion. If your tech fund makes up just 1% of your total investment portfolio, then perhaps it's worth (literally) gambling on some sort of re-bound, regardless of who or what the fund is riding on.

On the other hand, if you've seen half your life savings disappear with the tech bubble, then a change to some alternative savings vehicles has to be in order. Again, high interest deposit accounts and index trackers are good starting points in this respect.

But if you're somewhere in the middle (like most people), then you'll have to weigh up your thoughts on the fund's future performance with the amount you've got invested. If you lie awake at nights thinking about your fund's past performance and those 80% of professional investors who generally underperform the stock market, then cutting your losses for peace of mind would certainly be a good idea.

Summary

One important aspect of investing is to face up to your mistakes. There's no point remaining in denial, throwing good money after bad, and praying your tech investments come good. But then again, you may be happy that your tech fund is loaded up with quality companies awaiting an economic recovery. While the ultimate decision remains with the individual, the adage "you don't have to make it back the way you lost it" is probably appropriate for most tech fund investors.

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