EquitiesOct 29 2012

The endless search for the next big thing

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ByJenny Lowe

Technology funds are often assumed to be managed by computer geeks and populated by obscure companies that operate in arcane markets prone to intense cyclicality depending on what new development is the gadget du jour.

However, this impression is changing that to major cultural shifts that have placed technology at the core of almost every aspect of contemporary living. We are living in a communications age that is rapidly evolving.

An example of this came on 24 October, which played host to the single biggest change to broadcasting in the UK for a generation as analogue was replaced by digital television.

According to Digital UK chief executive David Scott, following the completion of the switchover, some airwaves previously used for television will be auctioned for 4G high-speed mobile broadband. 4G is the fourth generation of mobile phone technology, ideally suited for video streaming, email, messenger services and social networking.

Paul Lee, director of technology, media and telecommunications research at Deloitte, adds: “Digitisation of the broadcast signal has enabled a massive growth in the number of channels available, with UK households now enjoying between 50 to 400 broadcast channels, collectively broadcasting three million hours per year.

“Added to this, video-on-demand services, from broadcasters and providers such as Netflix, have expanded the choice available to UK consumers to near infinite levels. The underlying technology underpinning television has changed radically.”

The OECD Internet Economy Outlook report supports this assumption and the rapid rise in take-up of the internet, reporting that 70 per cent of OECD households have access to broadband internet at “increasingly higher speeds and lower costs”.

The report also suggests the shift to mobile internet connectivity is changing the consumption of content.

James Anderson, manager of Scottish Mortgage Investment Trust, agrees with the report’s findings.

“Amid the fashionable and exaggerated gloom it is the accelerating pace of change in technology and dramatic innovation that should give the pessimists most cause for thought,” he says.

“Innovation is transforming our societies and generating fabulously strong companies with remarkable economics and superb growth prospects. The leaders are broadening out from being dominated by electronics into fields as diverse as social media and healthcare... and with China joining the West coast of America as a driver of rapid and disruptive change.”

Cloud computing

Matthew Griffin, managing director and a member of the Boston Company Asset Management’s team managing the BNY Mellon American fund, suggests there is a comparison to be made with the current switch in the technology sector to that brought about by the invention of the personal computer.

He explains: “Microsoft and Intel displaced many mainframe computer companies. Now, such companies face being unseated from their positions of market dominance.