Technology and health stocks rebound strongly

swon@globeandmail.com

WHAT ARE WE LOOKING FOR?

It's Halloween so let's see which funds are handing out the best technology treats. With signs of a global economic recovery, this cyclical sector should benefit from increased capital spending.

TODAY'S SEARCH

We checked out the year-to-date returns for science and technology funds this year to Thursday, and annual returns of previous years.

We excluded the U.S. dollar and duplicate versions of the funds. Some in this group will invest only in technology, while others include stocks from the health care and biotechnology areas as well.

WHAT DID WE FIND?

Rebounding returns reminiscent of calendar 2003 when the sector began recovering after the tech meltdown.

And this year, many funds are beating the Nasdaq Composite in Canadian dollars. TD Science & Technology and CI Global Science & Technology have risen to the top of the heap with a 41- to 42-per-cent gain, compared with 16 per cent for the Nasdaq.

François Campeau, manager of CI Global Science & Technology, is still bullish on the technology sector despite the runup this year. (His U.S. dollar fund is up nearly 62 per cent.)

Usually, capital spending increases among corporations two quarters after a trough in earnings, said Mr. Campeau of New York-based Trilogy Global Advisors. "We are pretty much there. So we should see very good results from technology names in the next year...

"Technology is the most international of all the sectors in the S&P 500 - more than 50 per cent of the revenue comes from abroad. It will benefit from the weak [U.S.] dollar and strong euro."

Some of his fund's biggest winners this year have included names like Priceline.com Inc., Apple Inc. and Cognizant Technology Solutions Corp.

Despite his upbeat stance, Mr. Campeau started last week to slightly reduce his pure technology weighting when he began buying shares of pharmaceutical giant Roche Holding AG. "It's just valuation," said Mr. Campeau, who looks for growth stocks trading at reasonable prices.

"Roche is trading at a PE of 12 times 2010 earnings, while a lot of my tech names are in the high teens," he said. His defensive health care names now represent about 14 per cent of his fund compared with 10 per cent earlier this year.

The iShares CDN Technology Sector exchange-traded fund, meanwhile, is trailing closely with a 40-per-cent gain. This ETF tracks the S&P/TSX Capped Information Technology Index which holds five names: Research In Motion, CGI Group, Open Text, Celestica and MacDonald Dettwiler and Associates.

Scotia Nasdaq Index, which does not hedge its currency exposure back to Canadian dollars, posted nearly a 24-per-cent return. It tracks the Nasdaq 100 as opposed to the broader Nasdaq Composite.