Dramatic Comeback for Tech Funds

The NASDAQ hit bottom on April 4th and after that started to move up. Here in Canada, technology stocks followed suit. Not surprisingly then, the top performing mutual funds for April were the science and technology funds. Of the Top 25 Funds for one month as tallied at The Vancouver Sun website, an astounding 23 of them are technology or Internet funds. Of the other two, one is a blue chip fund that is heavily weighted in tech stocks. And the final one is the only non-tech fund - a China fund.

For the three month period, resource funds still dominate. And they are still growing as well. Tech funds just grew faster in April.

The Cabot Market Letter, which follows the technology sector in detail, reported that their Tech Tides indicator, which measures the Merrill Lynch 100 Tech Index against its 25 and 50 day moving averages, flashed a buy signal on April 19th. They are once again taking an aggressive stance toward investing, though they have diversified into energy, finance, housing and food service as well as technology.

Also spurring things along, Federal Reserve chairman Alan Greenspan lowered interest rates a half point on May. 14th. That's the fifth half point drop in rates this year bringing U.S. rates to their lowest point in seven years. Greenspan is clearly erring on the side of caution with interest rates.

But will it work? Certainly the short term effect on the market has been positive, but the economy itself is still ailing. More companies are coming in with negative earnings reports and downgraded guidance. The most recent prominent example being Cisco Systems.

On May 8th, Cisco announced revenues were down 4% for the third quarter to April 28th compared to the same period the year before. John Chambers, Cisco's CEO, said it was "the fastest deceleration any company of our size has ever experienced". Excluding one-time charges, the company came in ahead of earnings estimates for the quarter. But including those charges, the company reported its first quarterly loss in its history.

In Japan, the economic problems saw interest rates drop to virtually nothing (0.25%) to no avail. But as Milton Friedman noted in a recent interview, Japan has had extremely low monetary growth and this has aggravated the economic problems. Previous technology booms that went bust were accompanied by deflation, and Greenspan is making sure that doesn't happen. But higher inflation, says Friedman, "is almost sure to follow".

So will the resurgence in technology stocks continue? We wait. We watch. Meanwhile - as I noted in last month's mutual funds report - it may be worth sticking a toe back in the tech pot. Now even more so.

Rank	Fund	Type	1 Month	3 Month	1 Year
1	IUnits S&P/TSE Canadian Information Technology Index	Tech	31.72%	n/a	n/a
2	TD Science & Technology Fund U$	Tech	30.55%	-27.81%	-46.84%
3	TD Science & Technology GIF II	Tech	27.39%	-25.91%	-45.21%
4	TD Science & Technology RSP Fund	Tech	27.05%	-26.35%	-44.96%
5	TD Science & Technology Fund	Tech	26.95%	-26.03%	-44.90%
6	TD Science & Technology RSP Fund - Advisor Series	Tech	26.74%	-26.34%	n/a
7	Mackenzie Universal RSP Internet Technologies Fund	Tech	26.70%	-41.20%	-53.50%
8	TD Science & Technology Fund-Advisor Series	Tech	26.63%	-26.04%	n/a
9	Mackenzie Universal Internet Technologies Fund	Tech	26.33%	-41.02%	-53.65%
10	AIC Global Developing Technology Fund U$	Tech	26.29%	-19.86%	n/a

The Resolute Growth Fund continues to be the only fund qualifying as a Power Performer for April. But the number of Strong Performers, our weaker standard, has increased from two to three funds.

The market is improving and we expect the number of Strong Performers to increase considerably for May.