RCM tech trust seeks out larger stocks

Walter Price, manager of the £82.6m RCM Technology trust, is shifting into larger companies, saying that they will benefit from a resurgence of the ‘value investing’ style.

The manager, who is based at Allianz Global Investors (AGI), said value investing – buying shares on low valuations – is undergoing a tentative comeback and tech stocks stand to benefit.

Value investors such as Legg Mason’s Bill Miller have suffered a rough ride in recent years as a series of financial crises have led to markets focusing predominantly on top-down, macroeconomic factors and focusing less on company-specific factors such as value.

According to Mr Price, however, “value investors are starting to look at large-cap tech stocks because they can now see that there are low multiples, high cash flow, with yields and dividend growth.”

He said many of the stocks were priced at a relatively cheap 10 times their earnings, which he said “could triple”.

Specific stocks tipped by Mr Price included software group Microsoft, which is his second largest individual holding in the portfolio, as well as chipmaker Intel and network giant Cisco.

The shift into larger companies is being financed by a reduction in more economically sensitive medium-sized companies, the manager said.

These include SanDisk, the manufacturer of memory cards, and Akamai, a leader in web application acceleration. The manager said he had been disappointed by recent results at both companies and has exited them entirely.

Meanwhile, the manager is holding 7 per cent in cash – a move which he said was less about reducing his exposure to the stockmarket and more about building up a stockpile with which he can invest as valuations fall in future.

On July 16 the trust was trading at a share price of 306.8p, representing an 8.6 per cent discount to the net asset value of its investments.

Over the past five years the trust’s share price delivered a total return of 30.3 per cent, compared with its benchmark, the Dow Jones Global Technology index, which returned 31.4 per cent, according to Morningstar.