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Tech stocks: strongly positioned, says AxaFram’s Gleeson

Tech stocks have not participated in the the recent bull run as much as other sectors, but the prospects ahead look good.

By Leonora Walters, Reporter
Thursday October 22, 2009

US Tech stocks have done well year to date rising around 30 per cent between January September, despite the fact that they have not done as well as some other sectors in the recent bull run, according to Jeremy Gleeson, fund manager of the AxaFramlington Global Technology Fund. A reason for this is an investor preference for what are deemed to be safer assets – despite the fact many technology companies have matured significantly since the dotcom bust at the turn of the millennium, and are now managed efficiently and conservatively, with healthy balance sheets.

This offers a great opportunity to buy at attractive valuations, argues Gleeson, which have contracted significantly over the last few years meaning relatively low price-earnings ratios relative to other S&P 500 stocks, and relative to 2003 and long-term averages. But he believes this sector is set to turn up for reasons including the need for companies to upgrade technology in areas including wireless networks.          

He said emerging technology sectors include healthcare IT, boosted by the US administrations efforts to upgrade the country's medical infrastructure. Some semconductor and software companies are indirectly benefitting from demand for medical devices such as pacemamakers spurred by an aging population. Alternative energy solutions and power management technologies including semiconductors also look set to increase, in particular because energy efficient cars are more reliant on technology than existing models. National security is another emerging technology segment.

Tech fund, sector performance, 1yr


Other fund managers also anticipate an upturn for technology and telecoms. This view was unscored this week when search engine Yahoo! reported third quarter profit of $188m (£113.18m) – three times the year earlier period. On Monday Apple reported 47 per cent year on year rise in third quarter profits to $1.67bn – driven by iPhone and pc sales.

Gleeson said investors are starting to regain confidence, and certainly fund of funds manager Peter Hewitt, who runs the F&C Managed Portfolio Trust Growth and F&C Managed Portfolio Trust Income has recently added Polar Capital Technology to the Growth fund. He said technology and telecoms stocks are starting to do better as new products and developments emerge, while he expects a lot of mergers & acquisitions activity in the sector.

Gleeson also notes the potential for M&A activity ahead, and cited network equipment supplier Cisco’s recent decision to acquire Tandberg.

Hewitt said corporate expenditure should hit the bottom this year so that the environment for these technology companies is set to improve, and it is a sector he is watching. F&C Managed Portfolio Trust Growth already holds RCM Technology Trust as one of its top ten growth portfolio holdings accounting for 3.2 per cent of the portfolio as of 12 October, according to F&C.

In addition, investment advisers believe technology funds could now offer good opportunities for retail investors.

Over one year to 21 October IMA technology and telecoms is the fifth best performing IMA sector out of 32 with a total return of 45.9 per cent, while over six months it is at 14 with 24.1 per cent, according to Trustnet. Over five years it is 12 with 27.6 per cent.

AxaFramlington Global Technology Fund has made total returns of 62.7, 29.4 and 64.5 per cent over one, three and five years, according to Trustnet data as of 21 October. The sector average for these periods is 45.9 per cent, 15.5 per cent and 37.6 per cent.

Meanwhile AIC technology and telecoms is third out of 52 AIC sectors over one year with a total return of 119.9 per cent as of 21 October, according to Trustnet. Over five years it is 10 with 84.4 per cent.

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