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Tech is back, 10 years after bubble burst

Adviser Fund Index

The 10th anniversary of the end of the technology, media and telecoms boom may seem like an inappropriate moment to make bullish forecasts for the sector. But despite the heavy losses suffered by retail investors after the bubble burst in March 2000, some fund managers
are calling for a re-appraisal of technology stocks.

Calls have come from specialist technology managers and also from those running broader mandates.

This month’s Bank of America Merrill Lynch Global Fund Manager Survey shows that technology has become a consensus trade, with 40 per cent of fund managers overweight in the sector.

Despite last year’s rally, which saw the FTSE software and computer services index return 70 per cent, managers argue that technology stocks remain cheap.

Collins Stewart Select Opportunity fund manager Mark Piper says underinvestment on information technology over the past 10 years means that latent demand is ready to be “unleashed” as the recovery takes hold.

Adviser Fund Index panellists are also upbeat on technology stocks.

Both Chartwell head of research James Davies and Whitechurch Securities head of research Ben Willis say that the sector has changed markedly in recent years.

Willis says Whitechurch’s higher-risk portfolios often contain 5 per cent allocations to technology through exposure to specialist funds from GLG and Axa Framlington.

“Technology is something we hold within our smaller portfolios for highnet- worth clients,” says Willis. It is a different landscape to what it was in 2000. There were a lot of unsustainable businesses and people got caught up in the exuberance. But, in the recent crisis, we had a drying up of credit and only the fittest survived. Highly-geared companies have gone to the wall and it is now a far more robust sector.”

Davies, meanwhile, does not use sector- specific funds outside of commodities, but agrees that technology firms are in better shape.

“If you look at global growth funds, they tend to hold a large number of tech stocks and these are survivors of the tech era,” says Davies. “Companies like Google, Microsoft and Apple are almost regarded as utilities – it shows how the sector has developed.”

Neither Davies nor Willis holds technology funds in their AFI selections. Indeed, just one specialist portfolio – GLG technology equity – was selected for the aggressive index during last November’s rebalancing, by a single adviser.

Despite their upbeat views, both panellists say retail investors are unlikely to return to the sector in significant numbers. However, Davies says they may already be in danger of fuelling another bubble. “Humans are humans and they have not evolved since 2000,” he says. “You can argue that something like the China story could become a bubble. People are accepting the story as truth rather than checking it for themselves.”

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