Tech metamorphosis puts emphasis on stock pickers
The manager of the GLG Technology Equity fund says there will be some spectacular winners and losers in an industry that is urgently trying to adjust to the ubiquitous growth of mobile internet and cloud computing.
By Mark Smith, Reporter, FE Trustnet
Thursday April 26, 2012
Technology companies are close to a new dawn of value creation that is presenting the investment opportunity of a lifetime, according to GLG’s Philip Pearson
The manager of the £130m GLG Technology Equity fund says the next few years should see some spectacular winners and a number of big-name casualties as well.
"Right now we are at a very unusual period in tech industry. There have been three big transition periods in computing architecture."
"The first was the birth of PCs and the death of mainframes in the period 1986 to 1992. Phase two was the period people are most familiar with: 1995 to 2000 saw the creation of the internet and the dotcom bubble, the connecting together of computers. We are entering the third phase which has seen the creation of mobile, always connected internet devices. These businesses have created a value chain but they also destroy existing monopolies."
In an environment where huge companies are under threat from young upstarts, Pearson says it is essential that investors look to active managers who have the expertise to avoid the pitfalls.
"Buying a tech index or ETF is a very dangerous thing to do. This is not like it was in 1995 when you just bought technology companies and didn’t worry about it. You need to find people who really know what they are doing because there are going to be some very, very large losers in this environment."
"Just as IBM lost 85 per cent of its relative market cap in the six years between 1986 and 1992, before then it was the largest company in the industry. So we have to be very careful to avoid losers but on the other hand there is significant value creation. We think right now this is probably the most interesting stock-selection opportunity that we’ve seen in my investing lifetime."
Pearson says that investors would be wise to leave their preconceptions behind and recognise that the industry has evolved.
"The big issue around the industry is one of scepticism. We all remember that 1995 to 2000 period where there were two big decisions: buy tech in 1995 and sell it in 2000. This is a slightly different environment. There is the simultaneous creation of big companies like Apple, Arm and Facebook and we are no longer paying crazy multiples for businesses with no value and no prospects."
Performance of fund vs sector over 3-yrs
Source: FE Analytics
The GLG Technology Equity fund has returned roughly the same as the sector average over five and 10-year periods, according to our data. Over three years it has outperformed slightly, returning 70.56 per cent compared with 69.57 per cent from the average fund in the IMA Technology & Telecoms