Despite wracking up huge losses, many are still pouring money into these funds in the hope that they will bounce back. They are taking a big risk, experts say.
Last year’s big investment winners are turning into this year’s losers as the longest stock market bull run in history ends in chaos.
For a dozen years, global stock markets flew ever higher, thanks to record low interest rates and endless fiscal and monetary stimulus.
US tech stocks such as Amazon, Apple, Netflix, Facebook, Microsoft and Google-owner Alphabet made investors fortunes.
So did the investment funds that invested in these runaway tech titans.
Yet this year has seen a costly reckoning for those who fought tech would climb and climb.
The US has plunged into a bear market, falling more than 20 percent as the overvalued, overhyped tech sector crashed.
Many Brits who held US-focused investment funds in their pension and Stocks and Shares Isa portfolios are feeling a lot poorer as a result.
The hugely popular Baillie Gifford American fund fell by just over 50 percent in the first six months of this year, as did Morgan Stanley US Advantage and T. Rowe Price Global Technology Equity.
As we recently reported, another fund favourite, Scottish Mortgage Investment Trust, plunged 46.90 percent over the same period.
Investors in these funds have lost half their money in what has been a torrid year for tech growth stocks, said Jason Hollands, managing director of fund platform Bestinvest.
“Companies like Amazon and Tesla were stellar performers during more than a decade of ultra-low interest rates and mild inflation. Those days are over, at least for now.”
They have been punished by two factors. First, rocketing inflation has driven up the cost of labour, materials and loans, while reducing the value of their future earnings in real terms.
The S&P 500 fell 5.15 percent last week as the US Federal Reserve prepares to hike interest rates on Wednesday.
“This triggered a renewed rout in growth stocks, hurting some of the funds that have proven especially popular with UK investors due to their high returns,” Hollands says.
This year’s stock market volatility shows the importance of knowing exactly what your fund is investing in, he adds.
Nearly half of Baillie Gifford American is invested in just 10 stocks. “When things are going well, this can lead to rip-roaring performance, but this year its largest holding Tesla has fallen 24 percent, while another big bet Moderna is down 40 percent. The fund also went big on Shopify whose shares have crashed 71 percent.”
Some may think that now is a good time to buy back into the tech sector as valuations are much lower value some year ago, but Hollands urges caution.
“Tech stocks may eventually make a comeback, but only after interest rates slow and fall. That day may be some way off.”