PA OPINION: Why it pays to keep our tech friends virtual
From PA ANALYSIS Feb 3 2012 BY: Gary Shepherd
, Editor
, Portfolio Adviser
Admit it, it’s Friday afternoon and the last thing you want to do is read investment commentary. That’s where Twitter, Facebook, Linkedin and the rest come into play.
Web-based tech brands, social networking especially, but also online retailers such as Amazon, have become dear to the hearts of most office dwellers.
In hardware, the goodwill accrued by Apple was illustrated by the extent of the incredible outpouring of grief over the death of one of its founders last year, Steve Jobs – ask yourself would the CEO of Coca-Cola amass the same accolades?
But is it healthy for investors to buddy up so close to these behemoths? Facebook’s IPO has dominated market talk in recent days, but in the same week we’ve also seen a slide in shares of Amazon following a fall in fourth-quarter profits.
Growing suspicion
More tellingly, shares of anti-virus software provider AVG Technologies also fell on their market debut, indicating that investors are growing suspicious of the high valuations which tend to attach themselves to these newly-listed tech companies – a warning for Facebook?
“The level of hype surrounding social media in general, and Facebook in particular, is so high that an attractive entry point (from a valuation point of view) may not be achievable,” says Ian Warmerdam, co-manager of Henderson’s Global Technology and Horizon Global Technology funds.
“As we have seen so often through the history of technology a ‘hype cycle’ tends to envelop new and exciting technology developments. We only need to cast our minds back a short time in history to remember the stock market excitement that surrounded the rise of the internet, nano technology and solar technology, to name but a few.”
Tech is best left to the experts then, while a US-focus is essential if you are to make the most of the sector (though AIM should also get a mention as a fertile hunting ground). It’s the nature of the sector to look to the future, and great opportunities are always present, though volatility remains an issue.
ITs on discount
According to latest data from the AIC, an £100 investment in Herald investment trust at the end of 2008 would have turned into £244 in the three years to end 2011 (31 December). Polar Capital Technology (£220) and RCM Technology (£151) also grew in that time frame, though all three lost money over the past year. For interested investors, all three sit on discounts at present.
Over three years (to 2 Feb) the MSCI AC Info Tech index delivered a 70% return, while the IMA Technology & Telecoms sector has grown by 83% (perhaps aided by the contribution of telecoms).
No doubt, there’s money to be made from tech, but being invaluable to us as consumer service does not necessarily translate to the right valuations for us as investors, particularly when it comes to the net.