Technology manager Walter Price has said he no longer views technology major Apple as the market leader as its attempts to sell a low-cost phone have not worked and its speed of innovation has slowed.
Mr Price, who manages the £120.7m RCM Technology Trust, which is a member of the Investment Adviser 100 Club of top performing funds, said that while he did not anticipate the strength of Apple’s new iPhone offering, the company was not as strong as it used to be.
“The thing that surprised us is the 5s selling better than we thought, so that’s probably a slight positive for Apple,” he said, noting that the brand had a loyal customer base.
The trust, which is managed by Allianz Global Investors, has not owned Apple since last autumn as Mr Price believed its new products were too expensive and the rate of innovation was slower than rivals, including Samsung.
“The 5c has not been selling well – its attempt at a low-cost phone is not working,” he said.
“It needs to figure out how to grow its base and continue earning as smartphones get cheaper.”
Mr Price said he would consider reinvesting in Apple if there was evidence it was producing market-leading products, but he thought that as it stands, the company will continue to lose market share.
Social network Facebook was the trust’s second largest holding at the end of August, and was bought initially as a tactical play. The trust bought and sold the stock on the day of its initial public offering (IPO) in May last year because the manager anticipated that the stock would rally quickly, but had fundamental concerns about how it would monetise the transition to mobile phones.
When the company introduced its mobile news feed product in the middle of last year, which allowed advertisers to target users more efficiently, Mr Price bought back in at roughly $20 (£12.5) per share.
When the share went above $30 on renewed enthusiasm for the stock, the trust sold down part of its position in the company, which is now worth approximately $47 per share.
The manager said he thought the increased difficulty in bringing an IPO such as this to market was a sign that the sector had evolved since the burst of the technology bubble in 2000.
“There were a lot of companies going up on the basis of theoretical profitability and many of those companies failed,” he said. “What’s different now is it is much more difficult to have an IPO and get into the public market. Unless you are close to making money and have a robust cashflow, it’s difficult to become a public company, so the risk of buying these companies is a lot smaller than it was 10 years ago.”
The investment trust has risen 58 per cent in the past year, compared to a 33.1 per cent rise for the AIC Specialist: Technology, Media and Telecomms sector. In three and five years, it has also outperformed.
Mr Price said he was conscious of the need to stay on top of trends within the technology industry and worked with a team of analysts in San Francisco, as well as paying close attention to a poll of consumers.
The next big thing he said he was excited about was “apps”, or mobile applications.
“Many of these companies are just hitting the profitability stage and seeing costs grow a lot slower than revenues,” he said.
The manager also noted the video business had been transformed in recent years as more people view content online.
Apple was unavailable for comment.
Are LEDs taking over the lighting business?
Walter Price invests in Cree, which manufactures components for LEDs – light emitting diodes – as he believes this type of lighting is set to dominate the industry.
Cree makes LEDs for street lights that cost the same as halogen bulbs, but use a fraction of the energy, meaning they need less maintenance, the manager explained. Its share price has tripled since Mr Price bought it about a year ago.
“We like the company because we see it doing the same thing in other markets. You have a comparable quality of light to incandescent [bulbs] and much lower operating costs,” he said.
He added that margins had been lower in the most recent quarter as the business had expanded into the consumer lightbulb market.
The manager said that while Cree had LED competitors, its lights are the brightest, and should give a return on investments within 2-3 years.
