TD Science & Technology Fund a strong performer in a volatile sector


The technology sector has always been one of the more interesting areas to watch. New ideas are continually being developed and innovative products are being brought to market. While this is all “cool,” there can be a higher degree of risk, making it an ideal candidate for a mutual fund or ETF. And one of my favourite funds in the sector has been the TD Science & Technology Fund, sub-advised by T. Rowe Price.

The fund is managed by T. Rowe Price vice president Joshua Spencer and invests in companies from around the world that are involved in the development, advancement and use of technology. At the end of August, it held 60% of the portfolio in U.S. securities, 26% in European names, and another 7% in Asian stocks.

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It holds just under 50 stocks, with the top 10 making up nearly 60% of the portfolio. The top 10 is sprinkled with names like NXP Semiconductors NV (NASDAQ: NXPI), Inc. (NYSE: CRM), Charter Communications Inc. (NASDAQ: CHTR), Netflix Inc. (NASDAQ: NFLX), and Inc. (NASDAQ: AMZN).

Performance has been very strong, with the fund delivering an average annual compounded rate of return of 27% for the five years ending August 31, compared with the S&P 500’s gain of 21.6%. A good chunk of that can be ascribed to currency, with the U.S. dollar version gaining just under 19.6% annualized, compared with 15% for the broader market.

Given the nature of the sector, volatility has been higher for this fund, with a level of volatility that is significantly higher than the broader market. In 2008, it lost nearly 31% in Canadian dollar terms, while the S&P 500 was down 21%. However, the fund tends to bounce higher when markets rally. For example, in 2009, it bounced by an impressive 51%, while the S&P 500 rose by 7.4%.

The manager uses a very active process and has a level of portfolio turnover that has averaged well over 100% for the past five years. Further, the manager tends to use periods of volatility to step in and pick up quality names at attractive prices.

Despite carrying an MER of 2.81%, this is one of my top picks in the category. However, I would generally be reluctant to add additional technology exposure to a portfolio for anyone except the most aggressive investors.

Fund Company:TD Asset Management
Fund Type: Sector Equity
Rating: C
Style: Large Cap Growth
Risk level: High
Load status: No Load/Optional
RRSP/RRIF suitability: Fair
Manager: Josh Spencer of T. Rowe Price since January 2013
MER: 2.81%
Fund code: TDB645 (no load)
Minimum investment: $500

Courtesy Fundata Canada Inc. © 2016. Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc. This article is not intended as personalized advice. Investments mentioned are not guaranteed and carry risk of loss.

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