InvestmentsSep 26 2017

New risks for the main driver of world markets

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New risks for the main driver of world markets

Fidelity’s Global Technology fund leads the way in the open-ended space, turning out an average five-year growth rate of 24.3 per cent.

Ali Unwin, global technology fund manager at Neptune, says larger firms still present the best opportunity for future growth. 

Mr Unwin says: “The size and scale of the tech behemoths is not an aberration, but a natural function of an increasingly digital economy. When the costs of distribution and transaction fall dramatically – as is the case with online businesses – we see an increasing tendency for winners to keep winning.”

Bubble trouble

Those nervous about investing in technology point towards the infamous dotcom bubble, in which surging tech stock growth between 1997 and 2000 was followed by a market implosion. Such was the turnaround in fortunes that the Nasdaq composite index’s climb from 1,000 points to more than 5,000 points in the boom period was completely reversed in less than two years. 

HyunHo Sohn, manager of the Fidelity Global Technology fund, says: “Valuation comparisons with the dotcom bubble also must consider how the sector has changed in the interim. It is now far more global in nature, and less US-centric.  Software and associated services, which benefit from steady, recurring revenue streams, are taking an ever-greater share of the market relative to more cyclical hardware and equipment companies.”

Optimism or pessimism?

The risk of a pullback is not the only potential problem for the sector. Regulation is an ever-present obstacle for growth sectors, albeit a necessary one. Technology is no different. As more people manage their affairs online, including highly sensitive personal data, peace of mind that this information is protected becomes paramount. Wider global issues have also seen the technology sector come under close scrutiny. 

Mr Clode says: “As tech becomes a bigger part of the economy, are we going to be able to protect the individual in terms of privacy?”

Holding up

The traction gained by well-known tech companies such as the FAANG stocks has meant portfolios sway heavily towards US shares. Polar Capital Global Technology provides evidence as nearly two-thirds (65.5 per cent) of the fund is positioned in North American equities.

Given technology stocks’ dominance of US indices, even those investors who do not seek dedicated funds in the space will likely have sizeable exposure to the sector. For those who do buy into technology as a theme, the preference is often for a fund sitting outside the Investment Association (IA) or Association of Investment Companies’ Technology sectors.