Fear and fun on the hi-tech big dipper

For those investors who enjoy a roller-coaster ride, the technology sector is guaranteed to provide plenty of ups and downs. The performance of technology funds over the past year has been turbulent. The highs of late last year and early this year may have encouraged investors to pile in but the lows that followed when the technology bubble burst in March left many with fingers burnt.

For those investors who enjoy a roller-coaster ride, the technology sector is guaranteed to provide plenty of ups and downs. The performance of technology funds over the past year has been turbulent. The highs of late last year and early this year may have encouraged investors to pile in but the lows that followed when the technology bubble burst in March left many with fingers burnt.

While the technology sector is now recovering, given its volatility, is it a good place to invest your individual savings account (ISA) allowance?

Although themed funds tend to be volatile as their diversity is limited, the technology sector in particular has great potential for investment growth given the global impact technology is having on our lives.

There is also much more choice for investors, with the number of pure tech funds increasing from six to over 20 during the past two years.

Every investor should aim to have some tech exposure in their portfolio because this is where real investment growth will be seen over the long term. The amount of exposure you have will depend on the type of investor you are.

When choosing an ISA, remember that most funds have tech exposure, even if they aren't labelled a "tech fund". So, if you have invested in the Gartmore UK Smaller Companies fund, Invesco's European Growth fund or Dresdner RCM's UK Midcap fund, you could have considerable exposure to tech stocks already.

Some investors will want a pure tech fund. Demand for these funds is still high, with investors tending to opt either for technology or European funds.

John Churm, technical support manager at independent financial adviser (IFA) Torquil Clarke, says when demand for tech funds peaked earlier this year, some 40 per cent of his company's business was from investors wanting such funds. This has now fallen to between 15 and 20 per cent.

Those who invested in tech funds in February and March will have had some uneasy months wondering if they would recoup their losses. Ian Beestin, director of online discount broker, The ISA Shop, is confident these people will see their investment grow.

"It is impossible to get the timing right, but because of the growth you will see in the long term it won't matter, even for those who bought at peak prices," says Mr Beestin.

When choosing a tech fund you are advised to look at an investment of at least 10 years in order to guarantee growth.

Henderson's Global Technology fund has performed consistently over the past five years. But three of its fund managers resigned and are set to leave in January. This has challenged some investors' confidence, but most IFAs say investors should stay put.

"While you can't ignore the fact that they're going, you've also got to look at what remains," says Craig Whetton, chief executive of IFA Chartwell Investment.

"They will have done a lot of the work, but they also have a team indoctrinated with their ways of working. It may make good reading to say investors should get out now, but it's not good advice."

If you put your ISA allowance in a tech fund, you are looking at great potential for long-term growth. However, do appreciate the risk and understand the volatility of the market. If you are risk-averse, tech funds are not for you.

* Contacts: Chartwell, 01225 321700; The ISA Shop, www.isa-shop.co.uk; Torquil Clarke, 01902 576778.