Introduction
The Nasdaq Composite index has recorded several new highs in 2015 and on June 19 closed up 68 points to reach 5,132.95. This was topped on June 23 when the index hit a new high of 5,160.09.
The index has been propelled by biotechnology stocks in the main, as well as gains made by technology giants such as Apple and Facebook.
While the Investment Association’s Technology and Telecommunications sector’s peak this year was in February, when it saw £4m in inflows, since then net retail sales have been disappointing, with outflows of £8.8m in May, the latest figures show.
There are 15 funds that sit in the sector, according to FE Analytics, with the best 10-year performance belonging to the Pictet-Digital Communication fund. It generated a 247.15 per cent return in the 10 years to June 24, compared to the sector average of 163.94 per cent.
There are only two investment trusts in the Association of Investment Companies’ Tech Media & Telecomm sector, Allianz Global Investors and Polar Capital, however both are stellar performers in this category.
Luca Paolini, chief strategist at Pictet Asset Management, believes the valuation gap in the technology market is unwarranted and calls the sector’s prospects “particularly good”.
“The tech sector now trades at a discount to the global equity market based on prospective earnings,” he points out. “To us, this valuation gap is unwarranted as tech stocks are expected to deliver 30 per cent more earnings growth than other sectors over the next five years.
“Companies operating in the sector are also better equipped to hold up in a rising rate environment because they are cash rich.”
Jupiter’s Steve Davies, manager of the Jupiter UK Growth fund, harks back to January 9 2007, when Apple boss Steve Jobs announced the iPhone. Since then, “what might be termed ‘connected devices’ has ballooned to include tablets, watches and soon perhaps many other items in a vast ‘internet of things’,” adds Mr Davies.
But in an industry that moves so fast, he warns of the failure to appreciate technological change.
“Understanding the drivers of our ‘connected world’ not only helps point us in the direction of what to buy, but also to identify stocks that are at risk of being disrupted or indeed disintermediated,” Mr Davies notes.
‘Disruptive’ technology is a long-term theme being played by the portfolios of the multi-asset team at Miton.
Its definition of disruptive technologies are those “that displace an established technology, shake up an already established industry or, in some cases, form a completely new industry”.
But the team cautions that “in this space, there are many companies developing technologies that can be classified as ‘disruptive’, but just because something is disruptive, it doesn’t mean that it is investable”.
THE PICKS
Pictet-Digital Communication
This £365m fund is top in the IA Technology and Telecoms sector over 10 years and has notched up a top-quartile performance over one, three and five years as well. Run by Sylvie Sejournet and Nolan Hoffmeyer, they invest at least two-thirds of the fund’s assets in companies using digital technology to provide interactive services, the factsheet states. A sector breakdown shows the fund has 27.4 per cent in online advertising, 18.2 per cent allocated to network operators and 15.7 per cent exposure to ecommerce. Among its top-10 holdings are technology heavyweights eBay, Yahoo and Verizon Communications.
Axa Framlington Global Technology
Jeremy Gleeson is behind this top-performing fund that sets out to achieve long-term growth through investments in companies engaged in the research, design and development of technologies in all sectors. It’s an approach that has paid off, with the fund returning an impressive 225.01 per cent over 10 years to June 24, FE Analytics shows. In the past 12 months, it delivered 29.17 per cent, compared to the sector average of 19.97 per cent. Its top-three stocks are Apple, Google and Facebook.
EDITOR’S PICK
Fidelity Global Technology
Portfolio manager Hyunho Sohn employs a bottom-up approach to stockpicking, with a focus on “quality companies with sustainable growth prospects trading at attractive valuations”. The fund, which is £483m in size, counts Samsung Electronics and Qualcomm among its top holdings. In terms of regional exposure, the portfolio is overweight North America, which accounts for 67.5 per cent of the fund, followed by emerging markets at 14.7 per cent. FE Analytics shows the fund has outperformed its peer group over one, three, five and 10 years.
