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Tuesday, 6 March, 2001, 10:15 GMT
The Techmark's year to forget
Graph of the Techmark 100 over the past year
What a difference a year can make.

On this day last year, the London Stock Exchange's recently created index for technology stocks hit a lifetime high.

But since then, the Techmark 100 has slipped and slithered its way to levels below the 2,300 mark at which it started out in November 1999.

Share price collapse (Mar 2000-Mar 2001)
Psion: 1,454p to 138p
Lastminute.com: 487.5p to 55.5p
Scoot.com: 351.5p to 44p
Baltimore: 1,375p to 219.5p
Some of the index's most recognised names including online retailer Lastminute.com, handheld computer maker Psion and online directory Scoot.com have lost about 90% of their value over the year.

On Monday, the index closed at 2,301.86, 60% down on the 5,743.3 high of 6 March 2000 and only marginally up on the starting level.

Investor sentiment collapse

The reason for the sharp loss in the value of companies making up the index is the worldwide collapse in investor sentiment towards industries such as telecoms, computing, software, internet services and online retailing.

Tech fund sales
Jan 2000 238m
Mar 2000 878m
Jan 2001 74m
Source: AUTIF
In the United States, many of the world's leading tech firms have said economic slowdown will mean disappointing profits, while in Europe key players such as Nokia and Ericsson have warned of slower revenue growth.

Broadly, the Techmark's fall has reflected that of the Nasdaq, the main US market for tech stocks. Falls in UK tech stock prices have hit large and small companies alike.

Tech fund ISA sales
Jan 2000 57m
Mar 2000 345m
Jan 2001 13m
Source: AUTIF
In some of the most high-profile reverses, mobile phone group Vodafone lost its position as the UK's biggest company by market value to "old economy" oil giant BP Amoco, while Baltimore Technologies, Bookham Technology and Psion were among those dumped from the elite FTSE 100 index.

In another blow to tech firms' lustre, the flotation last month of France Telecom's Orange was widely perceived to be a flop, sparking fresh falls in telecoms stocks across Europe.

Fund inflows drop

The amount of new money being ploughed into Techmark firms via unit trusts and investment funds has also dropped substantially.

According to the Association of Unit Trusts & Investment Funds (AUTIF), tech funds accounted for just 3% of total gross retail sales in January 2001 compared with 10% a year earlier and 17% in March 2000.

Retail cash flowing into tech funds stood at 74m in January this year compared with 238m a year earlier and 878m in March 2000.

Top UK tech funds
Aberdeen technology unit trust 1,181m
Henderson global technology fund 1,132m
Aegon technology fund 274m
SocGen technology unit trust 228m
Jupiter global technology fund 182m
Total: 32 funds, 3,833m
Source: AUTIF; fund value Jan 2001
For ISAs - a tax-free savings product - the picture is even more marked.

Tech fund ISA sales totalled 13m in January this year compared with 57m in January 2000 and a massive 345m in March last year, when the height of the tech boom coincided with the traditional surge of money into tax-free savings plans in the last month of the tax year.

The rapid ebb and flow of tech share demand has also had an impact on financial services providers.

Presenting its annual results last week, Legal & General said its entire business suffered in the first quarter of 2000 through not offering a tech fund but recovered in succeeding months as investors deserted the sector.

Long-term

Over the past year, tech funds are commonly showing declines of 55-60%.

But last year's pain for investors is mitigated by much brighter performance in the longer term.

Techmark firms
Computer hardware
Computer services
Internet
Semiconductors
Software
Telecoms equipment
Others may apply
For example, Aberdeen Unit Trust Managers' technology unit trust - the UK's largest tech fund - shows a loss of 58% over the past year.

But it remains 92% up on three years ago and 130% ahead over five years.

Analysts are divided as to the prospects for tech funds.

"We have no idea how they are going to perform," an AUTIF spokeswoman said.

Profitability focus

Some analysts say tech stocks look cheap, given the past year's falls.

While this might be so, others maintain they are still expensive by other historical standards.

They argue it would be unwise to buy before better evidence emerges that valuations have bottomed out and profit growth has been restored.

Techmark constituents include:
Amstrad
Autonomy
Baltimore
Bookham
BT
Energis
Lastminute.com
Psion
Reuters
Scoot.com
Vodafone
What analysts can agree on is that the seemingly indiscriminate flood of money into the tech sector early last year was an aberration unlikely to be repeated.

Professional investors will now focus much more closely on those firms that can show a "clear path to profitability", as the "new economy" jargon has it.

In the case of mobile telecoms, internet services and the hard hit business-to-consumer internet sector, analysts have already begun switching to operating profit or revenue per customer as better measures of performance and prospects than growth in customer numbers alone.

Schroders - which has a 15m tech fund - is one of those still predicting "huge potential for long-term growth" in the tech market.

It says the downturn of recent months was as indiscriminate as early 2000's price surge and presents attractive buying opportunities.

Last year's retail investors may be unlikely to dash back to the Techmark after having their fingers burnt.

But at least tech stocks are now a more reasonable proposition for those looking for a long-term home for some of their money.

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See also:

05 Mar 01 | Business
Autonomy faces FTSE relegation
01 Mar 01 | Business
Troubled times for Psion
05 Dec 00 | Business
Blue chip index sheds tech stocks
15 Dec 00 | Review
Tech stock meltdown
04 Nov 99 | The Economy
UK launches Nasdaq rival
16 Sep 99 | The Economy
London to launch technology exchange
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