Tom Slater, joint manager of the £6.6bn Scottish Mortgage investment trust, believes biotechnology companies will produce the next generation of significant returns for the trust.
Scottish Mortgage has returned 218 per cent over the past five years compared to 105 per cent for the average trust in the AIC Global sector in the same time period.
The fund manager said the driver of returns has been investments in six large US and Chinese technology stocks, Amazon, Google and Facebook, Tencent, Baidu and Alibaba.
He retains faith in each of those investments, despite the enormous gains in share prices.
Mr Slater said: “While the share prices have gone up, they have not kept up with the progress made by each of those companies, each of those are powerful businesses that have gone up by more than we could have imagined.
"The dramatic changes been brought to the world by those companies are vastly under appreciated by the world.”
He said Amazon has only 2 per cent of the US retail sales, and has little market share around the rest of the world, so has plenty of room to grow.
The fund manager said the sort of progress made in digital technology in early years of this century is now being monetised by those businesses.
Such technological advance is now happening in the biotechnology sector, with genome sequencing, he said.
The Scottish Mortgage investment trust had 15 per cent of its capital employed in healthcare stocks in 2000, but the managers got worried about the lack of “productivity” from the sector as new treatments were not being developed.
But such is Mr Slater's excitement about the sector now, the exposure has returned to the 15 per cent level.
The fund manager said he thinks the technology sector will avoid the crashes of the past as “the winners from the technological revolution are now known, they weren’t in 1999”.
Mike Seidenberg, deputy manager of the £314m Allianz Technology Investment Trust, said the US tech giant about which he is most excited is Netflix, as this company grows its user numbers outside of the US.
Tony Yousefian, who runs Probus Financial Services and works with research company FundCalibre, said the returns achieved by the Allianz Technology Trust in recent years have been strong, but delivered with a fair amount of volatility.
Mr Slater said he acknowledged that the winners from scientific advances is biotechnology are not yet known, as a result he owns smaller stakes in most of those investments, but said while some will go to zero, the winners will “more than pay for” those that don’t succeed.
He said he tried in recent years, as the precise direction of the science was at a more nebulous stage, to buy the “picks and shovels” shares, that is companies providing machinery to biotech names, as such businesses are likely to carry less risk.
One such company is Illumina. He said 90 per cent of all genome sequencing tests ever carried out in human history have happened on one of Illumina’s machines, so he feels this is one of the identifiable “winners” of the changes in biotech.
He added that he has taken smaller positions in companies such as Grail and Bluebird Biotech that he believes can be the winners of the future.
James Pigott, managing director at Pigotts Investments in Dorking, said the nature of the investments in the trust might mean its a “volatile” investment, but it is a trust “you can't do without.”
Gerit Schmit, head of equity management at Stonehage Fleming said the boom in big technology stocks is unlike that of 1999.
He said in 1999 the tech rally was about “blue sky” ideas, but the company valuations are now based more on fundamentals.
David.Thorpe@ft.com
