UK Smaller Companies funds had an average of 15.92 per cent in telecoms, media and technology at the end of December, but that rose to 21.14 per cent at the end of last month, an increase of 33 per cent.
The average IMA UK All Companies fund increased its weighting from 9.99 per cent to 12.76 per cent. Neither sector has had more in tech at any point during the last three years.
Tom Cockerill, investment director at Rowan Dartington, suggests that managers could be buying back into the sector after the recent market dip exposed value.
Data from FE Analytics shows that 2013 wasn’t a particularly good year for the tech sector.
The FTSE All Share Technology index is well ahead of the overall market over three years but lags behind it on a 12-month view.
Over three years the tech sector is up 56.47 per cent to the 27.17 per cent of the index.
Performance of sector and index over 3yrs
Source: FE Analytics
However, over the past year the sector has lagged, returning just 7.52 per cent against the market’s 12.35 per cent.
Performance of sector vs index over 1yr
Source: FE Analytics
The sector has also taken a hit over the past month, just as many managers have bought in.
The fund with the highest exposure to tech in the sector is Liontrust UK Smaller Companies, which has a 36.87 per cent weighting.
That has steadily increased from 31.05 per cent at the end of August.
FE Alpha Managers Anthony Cross and Julian Fosh have long favoured technology stocks as many possess the characteristics they are looking for: defendable niche position and unique selling points.
Paypoint, Advanced Computer Software Group, Intercede and Iomart are all top-10 holdings in their fund.
Source: FE Analytics
Unicorn UK Smaller Companies is one fund to have recently upped its weighting to the sector.
Manager Simon Moon, who runs the portfolio with FE Alpha Manager John McClure, has taken his holdings in the sector up to 26.8 per cent from just 17.4 per cent in September.
His top three holdings – Porvair, Trifast and Servelec Group – are all technology stocks.
Software company Servelec Group floated in December, and shares are up 18.66 per cent since then.
The dangers of investing in relatively early-stage tech was illustrated during this period by the fate of Blinkx.
The stock was one of the stars of the FTSE in 2013, rising by 214.56 per cent during the year.
However, it is down 42.94 per cent in the early weeks of 2014, having been hit by allegations that it uses dubious practices to gather clicks.
Harvard Business School professor Ben Edelman published a blog in which he made various allegations against the company. It refuted these, accusing him of being paid by short sellers and filed a complaint of market manipulation.
Performance of stock versus index over 2yrs
Source: FE Analytics
The stock had become a favoured holding of a number of top-performing fund managers prior to its fall from grace, including Fraser Mackersie of the Unicorn Free Spirit fund.
It is currently still a top-10 holding of eight funds, including BlackRock UK Smaller Companies, which has 2 per cent in the stock.
Standard Life Global Smaller Companies and Investec UK Smaller Companies are two notable funds to retain it in their top-10.
As recently as January the stock was a top holding in the top-performing R&M UK Smaller Companies fund.
BlackRock gave the company a vote of confidence last week by raising its stake to 13 per cent from 11.6 per cent.
Ralph Cox, who runs small cap portfolios at BlackRock, told FE Trustnet that gauging how internet companies make their money is sometimes difficult, but that he and co-manager Richard Plackett were happy to stick with the stock.
Some analysts, including managers in the sector, warn that this opacity in how many tech stocks make their money could come back to bite investors.
Stuart O’Gorman, who runs the Henderson Global Technology fund, says he is steering clear of small cap tech as it is being pushed on to high valuations that are divorced from reality.
One UK stock with question marks being raised about it is Ocado.
The company has seen huge share price gains of 369 per cent over one year, boosted by the announcement of a tie-up with Morrisons to deliver its goods – but the company still hasn’t recorded a profit.
