EquitiesJun 29 2016

News Analysis: Opportunities for tech disruption

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News Analysis: Opportunities for tech disruption

Valuations, alongside the lack of long-term growth trajectory for some disruptive firms are cited as two reasons why fund selectors struggle to fully engage with the sector. Of the past 12 months, 10 have seen net outflows from the Technology and Telecoms sector, data from the IA shows. The sector boasts 15 funds, of which Mr Unwin’s is the latest.

Axa Wealth head of investing Adrian Lowcock says valuations remain the biggest single issue for investors when it comes to technology stocks.

He says: “On a simple price-to-earnings basis, technology companies such as Facebook and Google look expensive. Valuations in disruption technologies or transformative companies don’t look attractive.”

But Mr Lowcock adds: “If they can enter new markets and displace the incumbents, what looks expensive today might look cheap in a few years’ time.”

Whitechurch Securities managing director Gavin Haynes is equally anxious about the sector, and warns it is easy to get carried away with the wave of technology stocks and specialist technology funds coming to market.

However, the dotcom boom of the early 2000s may have taught the industry to tread carefully.

“For each successful innovation that becomes highly profitable, there will be many failures and loss-making investments,” Mr Haynes says.

Despite this, dedicated funds and their managers continue to find opportunities in a growing space, whether it be in big-name stocks such as Tesla, or those further down the supply chain. Also, finding good valuations in technology does not necessarily mean the stock must be a significant market disrupter.

Mr Clements says energy storage and solar power are key themes within his own fund. He notes over the past decade that solar power has become significantly cheaper, with the average cost of a PV solar panel falling 66 per cent since 2010, which has made solar-generated electricity more cost-effective than retail electricity in a number of regions in the world.

“Around 70 per cent of a Tesla electronic car consists of software and electronics – with the engine forming a much smaller component,” Mr Clements adds.

“This compares with 30 per cent software and electronics in a traditional car. We hold a number of companies set to benefit from this growing trend.”