An eye to technology

The technology sector has not been the richest of hunting grounds in recent years.

The dotcom crash of 2000-1 has been followed by several years of poor returns and negative investor sentiment.

Since the heady days of early 2000, managers have occasionally re-emerged from the trenches but until recently returns have not justified any investment.

However in recent months, technology has reappeared on the radar of the fund manager and retail investor as returns start to the beat the wider market.

Managers such as F&C’s Peter Jarvis outperformed their benchmarks in part due to an overweight stance to technology to boost returns. On his small- and mid-cap focusesd F&C Eurotrust, he said an overweight to technology had also proved beneficial to returns.

Stocks that had performed well included Axis Communications, a company that provides digital CCTV solutions and French real estate web portal, Seloger.Com.

These examples are a clear sign that technology stocks are now able to generate real revenues not just have the potential to do so.

And it is not just growth managers who are turning to technology stocks, but value managers such as Lindsell Train’s Nick Train.

“The recent takeovers of Dow Jones and Reuters illustrate how much value investors have left on the table in the media and technology sectors," he says.

"The sector is benefiting from a resurgence in the value of media content businesses underpinned by recent corporate activity.”

Price Walter, manager of the RCM Technology closed ended fund from Allianz Global Investors points to consumer spending and China as key to future returns.

“We see a number of key themes for the sector and that the consumer will provide the dynamo for the sector’s growth in the near term. Unlike corporate spending, which we believe will come under pressure next year, consumer expenditure on technology remains strong, helped by new products and better functionality."

"Purchasers are enjoying increasingly better performance and more features for the same or lower prices – in particular with mobile 'Smartphone' products, but also navigation systems, HD TVs and new gaming products."

Price also highlights solar and China as themes for outperformance.

"Solar and China are compelling investment areas. In China we are seeing value in domestic internet and portal companies, which dominate locally over Western competitors Google, Yahoo and Microsoft," he said.

One of the best known technology managers Artemis co-founder Lindsay Whitelaw believes tech company managers have learnt valuable lessons after experiencing the heady heights of huge valuations prior to the bubble bursting.

“There is now an air of realism about the tech sector prospects which gives the companies down to earth valuations grounded in reality,” he says.

“While the sector is not immune to the slowdown there are still exciting pockets of underlying growth.”

Among his favourite themes are green technology, and the burgeoning demand for laptop and notebook products.

1 January 2008