Did You Benefit From Tech Winter? March 4, 2011 Adviser Fund Update Print A Snowy Tech Winter While winter may yet hold a few more weeks of storms and chilly temperatures in store, spring-like days have begun to creep into weekly forecasts, meaning we have come to the end of the annual ‘season’ of Tech Winter. If you recall, in November we wrote to you about what we call Tech Winter–the four month period from November to February during which technology stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. have traditionally outperformed. We’ve tracked this phenomenon over the past 26 years and found overwhelming evidence of the trend. While it is not a sure thing every year, the most recent Tech Winter lends support to the theory. From November 2010 through February 2011, the most tech-heavy funds at both Vanguard and Fidelity, with a handful of exceptions, outperformed the S&P 500. Unlike last year, when the funds we use to track this trend outperformed the S&P 500 nearly across the board, this year, a number of tech-heavy funds at Vanguard and one at Fidelity lagged the index, although not by much. Source: Adviser Investments Vanguard’s 500 Index (used in the charts as proxy for the S&P 500) returned 12.9% from the start of November 2010 through February of this year, and, as mentioned above, four of Vanguard’s tech-heavy funds surpassed that. The notable outperformers were Explorer, which gained an impressive 17.9% over the period (it was also helped by small-cap stocks’ continued relative outperformance over the past couple of years) and MidCap Growth, which gained 14.5%. Capital Opportunity and Morgan Growth also beat the index, albeit by slimmer margins, while PRIMECAP Core, PRIMECAP, Growth Index and Information Technology ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index. all lagged it, although none by more than 150 basis points or so. Source: Adviser Investments Fidelity’s tech-focused Select funds were also Tech Winter outperformers, although Select Software & Computer Services failed to beat the index for the second year in a row. The best of the bunch, Select Electronics, gained a whopping 23.4%, while Select Technology (14.8%) and Select Computers (13.1%) had solid showings as well. A big part of why we like to talk about the Tech Winter phenomenon is because it highlights the skills of some of our favorite managers and their dexterous stock-picking, which we put to use in our clients’ portfolios. Among those managers is the team at PRIMECAP, responsible for Capital Opportunity (40% allocated to tech through January), PRIMECAP (32%) and PRIMECAP Core (26%). They are very fond of tech investing, but do it intelligently, hedging their bets by spreading a majority of their assets across multiple sectors. Obviously, this does not equate to a win every Tech Winter or over any other given short-term period. In fact, looking at the performance of PRIMECAP, where PRIMECAP Management has its longest tenure (dating back to 1984), we found that, on a monthly basis, the team has only beaten the S&P 500 57% of the time. However, those months of outperformance have been enough to account for a near doubling of the index’s cumulative return over the 26-plus-year period, a shining example of quality active management prevailing over the markets. The Fidelity funds we hold on behalf of our clients with tech holdings greater than the S&P 500’s 19% allocation were a mixed bag this Tech Winter, with Contrafund (34% in tech through January) lagging the index with a 9.9% return over the four months, while Magellan (29%) outperformed, gaining 14.4%. When looking at these shorter-term trends, we do not advise making drastic moves in your portfolio in an attempt to catch four months of potential outperformance–such a strategy runs counter to our long-term investment discipline. What we do recommend is keeping a diversified portfolio with tech exposure, so that you reap some benefit from Tech Winter without adding unnecessary riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.. This philosophy has enhanced our client portfolios not only during the four months of Tech Winter, but the rest of the year–year in and year out–as well. About Adviser Investments Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the fifth consecutive year, Adviser Investments was named to Barron’s list of the top 100 independent financial advisers nationwide and its list of the top advisory firms in Massachusetts in 2017. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015 and 2016. For more information, please visit www.adviserinvestments.com or call 800-492-6868. Disclaimer: This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. The Barron’s rankings consider factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. This award does not consider client experience and is not indicative of future performance. Editors at the Financial Times bestowed “elite” status on 300 firms in the U.S., as determined by assets under management, asset growth, longevity, compliance record, industry certifications and online accessibility. © 2018 Adviser Investments, LLC. All Rights Reserved.