12 January 2000

By Sylvia Morris

Technology companies hit the headlines again this week as intenet giant AOL announced plans for a £220bn merger with film empire Time Warner.
True to form final management groups are following the trend by launching new funds investing exclusively in companies at the sharp end of technology.
But rather than using a fund manager to pick the shares in the same way as traditional, established technology funds, the new offerings are tracker funds.
Trackers simply buy shares which make up a particular index. If a company makes up 3pc of an index, the fund will invest 3*pc of its money in that stock.
The new Investec Guinness Flight Wired Index Trust tracks the Wired Index, launched by the U.S. magazine Wired. This is made up of 40 companies which are successfully using new technology to grow their businesses.
Close Fund Management's techMARK fund tracks the FTSE techMARK 100 index. This new index, launched in November, covers 100 UK companies involved in technological industries, including the burgeoning internet, telecommunications and biotechnology fields.
Unlike the more familiar FTSE 100 the new index does not track the largest companies. Instead it goes for the 100 largest worth less than£4billion.
This fund places the emphasis on fast-growing and dynamic medium-sized and smaller companies and rules out the massive industry giants such as BT, Vodafone Airtouch and Smithkline Beecham.
Shares in companies involved in technology were hard hit in the latest share slide. The techMARK 100 index fell more than 6pc in the first week of January.
Funds tracking technology stocks are highly specialised and only suitable for the experienced investor, fully prepared for all the risks of this volatile sector.
Neither is it easy to keep track of your investment. Unlike the FTSE 100 or, to a lesser extent, the FTSE All-Share they are not widely quoted in the media. These are the main indices used to measure the ups and downs of share prices on the UK stock market and which form the basis of many index-tracking funds investing in British companies.
The FTSE 100 covers the largest 100 UK companies, excluding investment trusts. Funds tracking this index include those run by Direct Line, Marks & Spencer, CGU, HSBC and Mercury.
The FTSE All-Share covers over 800 companies, including those in the FTSE 100 index. Shares in the FTSE 100 account for 80*pc of this wider index.
Funds tracking the All-Share index include Legal & General, Gartmore, HSBC, Norwich Union, M&G, Fidelity and Virgin.
Independent financial advisers stress that while these new funds might appeal to the more experienced investor, first-time buyers would be wise to stick to more widely based funds.
Justin Modray from Chase de Vere says: `Tracker funds covering the UK market can be good investments for first-time buyers looking to build up a wide ranging portfolio mixing both tracker and actively managed funds over a period of time.
`The FTSE All-Share has a considerably more balanced approach and a better risk profile than the FTSE 100,' he adds. Justin picks the Legal & General UK Index fund which tracks the All-Share and has very competitive, low charges.
Patrick Connolly at Chartwell Investment agrees. `The All-Share index gives you a bit more diversification. You need to pick a trust with low charges.'
Legal & General limits its charges to an annual management fee of just 0.5*pc a year. M & G has recently cut its annual charge to 0.3pc on its All-Share Tracker.
The £85million Liontrust fund has dipped to 0.295*pc, although this fund tracks the narrower FTSE 100.
None of the funds listed have either an entry or exit fee. Some managers take up to 5*pc of your initial investment as an upfront fee.