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The new tech boom

Lee Jones reports on the return of technology in investment as tech funds produced a sector average return of 50 per cent over the last year

The future looked so bright for technology at the recent Consumer Electronics Show in Las Vegas which showcased the latest developments such as this dive mask with an integrated HD video camera
The future looked so bright for technology at the recent Consumer Electronics Show in Las Vegas which showcased the latest developments such as this dive mask with an integrated HD video camera

The fallout from the tech crash at the turn of the century has meant that only 10 UK technology funds remain, with less than £700m under management between them, according to Morningstar figures.

But Finance and Technology Research Centre director Ian McKenna says there is an industry boom quietly going on right now. He says: “We have just been through the worst recession in living memory and then you have the Consumer Electronics Show in Las Vegas recently and it was enormous, with an almost unparalleled rollout of new technologies.”

The funds that have remained are performing well. Morningstar figures show the sector to be up by 50 per cent over a year, with some of the better-performing funds up by nearly 70 per cent over 12 months.

So why aren’t we experiencing another tech invest- ment boom?

Henderson global technology fund manager Stewart O’Gorman says: “Most people put their money into tech at the exact peak of the bubble, effectively Isa season 2000, and everyone lost money, even those who knew what they were doing.”

The sheer scale of the bust is illustrated through the Nasdaq. The tech bubble pushed the Nasdaq to a record high of 5,048 on March 10, 2000 but 30 days later it had fallen by more than a third to 3,321 and a year later the market had fallen to just 1,720.

F&C director and head of global/US equity team Jeremy Tigue says: “Things got too overexcited at the end of the 20th century. Ten years ago, there was a feeling of big technological changes and they have happened but it was consumers, not investors, who have benefited most.”

McKenna says investment in technology is doomed to booms. “Technology should be seen as a more volatile area because its nature is ground-breaking and if it is ground-breaking there will therefore be failure.

‘Firms now have old equipment and there is better, cheaper technology out there so if we can struggle out of the abyss the most logical thing for a firm to spend their limited capital on first is efficient technology

“Get it right and it is great but get it wrong and you are going to really hurt. In the technology industry, if you do not succeed, there is very little middle ground because firms either make it big or bomb out, so maybe people’s caution is justified.”

But Axa Framlington global technology fund manager Jeremy Gleeson disagrees that booms are inherent to technology. He says: “Once technology firms find their corner, it is hard to usurp them. Innovation and development change rapidly but the implementation of technology takes a long time, Successful technologies stick around a lot longer and become a lot more embedded than people think.”

Brands such as Google, Blackberry and Apple are now household names, more people work remotely using technology and millions use Twitter and Facebook.

But the sector continues to dwindle and saw two funds close last year alone. Gleeson says part of the problem is that the mini-revival in the fund sector is only a year old.

He says: “The decision to relaunch funds tends to take more than one year of good figures. The magnitude of the fallout and the amount people lost has stuck in memories.

“It would be hard for management to do a U-turn and reopen funds, especially now while the sector is receiving so little retail interest.”

But O’Gorman points out: “If most people hate a sector and misconstrue what a sector is about, then that is where you find opportunity.

“If far too much money enters a sector, then no one makes any money. It happened with property and that is why there are empty office blocks everywhere and it is a horrible investment.

“Maybe in three years we will look at emerging markets and wonder how we did not see how much money was pouring in the sector. When specialist areas are fashionable, that is the time you should be heading for the hills.”

Tigue says: “You make money by doing the opposite of the consensus.”

But both Gleeson and O’Gorman warn that the tech speculator can be at the mercy of fads. O’Gorman says: “Some firms’ only barrier to entry into the market is that they have the coolest product and that is dangerous. Picking a firm by assessing stocks on the barriers to entry means that picking crashes is rare.”

Will we see more tech funds being launched? Ample Financial managing director Colin Parkin hopes so. He says: “IFAs would like to see more tech funds, the industry has a good future.”

He also believes that clients are not wary of tech funds any more. “Clients are finding out that the investment ground rules that were written years ago have been ripped up after this crash. For them, it is a new dawn, so having an IFA with vision and imagination now is what is important if you are having a portfolio managed.”

Managers are confident that the tech funds that still exist will continue to perform.

O’Gorman says: “Tech spending by enterprises has been on life support for years. Firms now have old equipment and there is better, cheaper technology out there so if we can struggle out of the abyss the most logical thing for a firm to spend their limited capital on first is efficient technology.

“But if the economy goes to hell, tech will be a good place also because the sector has no debt and it is so cash-generative. In either circumstance, it is not the best place to put your money but it will outperform a rising or falling market.”

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