Introduction
The past 16 years have seen an improvement in the sector’s reputation as an investment with many big-name technology companies listing on the stock exchange. In addition, the theme of digital disruption is one that many investors, and not just technology specialists, are looking to exploit. The most obvious example is online retailers and the disruption caused to their physical counterparts – as demonstrated by Amazon moving into the grocery space in a deal with Morrisons – as well as the increasing interest in technology such as Blockchain.
Developments in technology are also leading to more mergers and acquisitions, creating opportunities for the savvy investor – the latest of which saw Microsoft acquire LinkedIn for $26.2bn (£18.5bn).
Dr Aneesh Banerjee, a lecturer in management at Cass Business School, notes: “Microsoft buying LinkedIn is being reported as one of the biggest technology deals in history. The main reason why LinkedIn has been able to command such a massive premium is because it has what all customer relationship management (CRM) and HR application vendors want: the 400 million-strong network of professionals through which individuals and firms are increasingly looking for new sales opportunities, jobs and professional information. Now that Microsoft owns this network, it has a resource that cannot be easily copied by others in the enterprise applications space.”
But in spite of the strong performance in 2015 of big-name stocks, such as Facebook, Amazon, Netflix and Google, UK retail investors appear less interested. Figures from the Investment Association show in the past year the IA Technology and Telecommunications sector has seen net retail outflows in 10 of the 12 months, including £61m of outflows in April 2016.
In contrast, the average performance of funds in this sector has been strong, topping the list for the best-performing sector in the 10 years to June 16 2016 with an average return of 160 per cent, as well as ranking the third and fourth best performing of all IA sectors across three and five years respectively, data from FE Analytics shows.
| FUND PICKS |
Axa Framlington Global Technology Launched in April 1999, this £260m fund is a member of the IA 100 Club 2015 and has been managed by Jeremy Gleeson since July 2007, with the aim of providing long-term capital growth. The fund has strong long-term performance with a 10-year return to June 16 2016 of 208.5 per cent, ranking third in the IA Technology and Telecommunications sector compared with the average sector performance of 160 per cent, according to data from FE Analytics. The largest sector weighting is to internet software and services at 24.3 per cent, while the top-10 holdings include Alphabet, Facebook and Apple. Polar Capital Global Technology Managed by Nick Evans and Ben Rogoff, this $777m (£521m) Dublin-listed fund was launched in 2001 and aims to achieve long-term capital appreciation by investing in a globally diversified portfolio of tech companies. It adopts a fundamentally driven analysis and stock selection approach, and has delivered consistent performance ranking in the top-five funds in the sector across one, three and five years, with the 12-month return of 11.3 per cent almost three times the sector average of 4 per cent. The largest sector weighting is to internet software and services at 29.1 per cent. Top holdings include Amazon, Splunk and Alibaba. EDITOR’S PICK Fidelity Global Technology Managed by HyunHo Sohn since 2013, this fund launched in 1999 with the aim of providing long-term capital growth, while income levels are expected to be low. At least 70 per cent of the fund is invested in companies globally that provide, or benefit from, technological advances and improvements. The fund topped the IA Technology and Telecommunications sector in one, three and five years to June 16 2016 and ranks fourth for the 10-year period with a return of 198.2 per cent. The largest regional exposure is to North America at 71 per cent, while top positions include Alphabet, Apple and Intel. |
So are some investors missing an opportunity? In a recent blog, Daniel Adams, senior investment analyst at Psigma Investment Management, points out while technological change and the ‘internet of things’ are well documented, and described by some as the fourth industrial revolution, “this might be a strange concept for many to grasp”.
He adds: “This can be partly explained by the outcomes, which are less tangible than in previous industrial revolutions – apps, peer-to-peer lending or artificial intelligence are prime examples. However, the scale of the disruption is extraordinary. The change is beneficial to the consumer, but identifying how to play that is challenging. The implication of this trend is not only resulting in a fundamental change to established business models, but many of the traditional valuation metrics used to value companies have similarly become redundant.”
It is not surprising, then, that some investors are shy of taking the plunge. But for those willing to take the risk, the unfolding of the digital age can provide interesting opportunities.
