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Disruption benefits technology sector, helping deliver triple digit fund growth

21 November 2017

The technology, media and telecommunications sector is in a “particularly dynamic phase” with unparalled disruption in many industries, according to Herald Investment Trust.

Speaking at a recent technology investment event hosted by the Association of Investment Companies, manager of Herald Investment Trust Katie Potts said the migration to public cloud is driving hardware costs down.

Potts commented: “Our small cap focus makes us aware how much the big datacentres of Amazon, Microsoft, Alibaba and Google are sourcing components and not systems and driving down costs. They are competing for business offering bundles of security and applications either free or at lower costs than traditional suppliers. These big companies have supply chains which can benefit numerous small companies. Furthermore this is providing much lower capital requirements for small entrepreneurial businesses to enter the market and compete.”

Earlier this month, technology companies helped to push the S&P 500 to a record close of 2,594, driven by the strong performance of companies such as Amazon, Apple, Alphabet and Facebook.

Over five years, both companies in Sector Specialist: Technology, Media, Telecommunications have more than trebled investors’ money, with Allianz Technology Trust delivering returns of 273% and Polar Capital Technology 213%.

In the Sector Specialist: Small Media, Communication & IT Companies, Herald Investment Trust also fared particularly well, returning 42%, 81% and 128% over one, three and five years respectively.

Annabel Brodie-Smith, communications director of the Association of Investment Companies, said: “With the rise of companies such as Facebook, Amazon and Google we have seen technology businesses grow to become some of the world’s largest companies. The closed-ended structure of investment companies means they are well suited to investing for long periods, helping investors to benefit from this long-term growth. Of course we don’t know who the new global companies of tomorrow are going to be, but investment companies’ professional fund managers give investors the opportunity to benefit from expert stock selection.”

Walter Price, portfolio manager of Allianz Technology Trust, said the firm remained positive on FAANG stocks (Facebook, Amazon, Apple, Netflix, Alphabet’s Google) and the US technology climate in the long -term, believing the companies to have a strong competitive position and significant opportunities for attractive earnings growth.

Price said: “We believe the US technology climate remains favourable despite the recent strong run in the sector. New technologies are helping businesses operate more efficiently and improve productivity. As corporate spending increases, we believe the stronger technology companies will continue to benefit.”

Looking ahead, Price said his company saw attractive opportunities in multiple segments and themes in the technology sector, in particular semiconductors such as Micron Technology, cloud computing and software.

He said: “Compelling opportunities are presenting themselves across the high growth, growth at a reasonable price, and value segments of technology.”

Ben Rogoff, lead manager of Polar Capital Technology Trust, reported an uptick in urgency on the part of IT leaders to transform themselves into digital companies.

He said: “This likely reflects the accelerated pace of disruption occurring across myriad sectors fuelled by transformational technologies including cloud computing, smartphones, the internet of things and artificial intelligence. While Amazon’s disruption of retail is well documented and ongoing, many other industries are also being reshaped with new winners emerging.”

 

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