Is it time to take a new look at technology?
A decade after the dotcom bubble burst, technology stocks are on the way up again as companies look to replace their IT systems following the recession.
Over the past six months, the sector has been the top performer, delivering growth of 19.1%, compared with growth of 11% in the FTSE 100 index.
Anthony Yadgaroff, managing director at discount broker Allenbridge, says: “The world has moved on from 10 years ago. Technology is much more embedded in our Western way of life, and increasingly in that of developing nations as well.”
After the market setbacks of 1990 and 2002, technology stocks showed an ability to rally. And this time around, the sector could be helped by a software-replacement cycle, which analysts suggest happens every 10 years.
Hugh Yarrow, investment manager at Wise Investment, says it’s important to make a distinction between US and UK technology sectors. “A positive argument for US large-cap technology stocks doesn’t necessarily translate into a similar argument for our domestic sector. Most of the market-leading brands, such as IBM, Microsoft and Apple, are US-based.”
For this reason, most technology funds typically have two-thirds invested in the US, with some exposure to the UK and Taiwan. This makes them sensitive to the US economy and to the current strength of the dollar.
Out of 10 technology funds in the sector, the AXA Framlington Global Technology fund, managed by Jeremy Gleeson, has performed consistently over one, three and seven years. Gleeson thinks the development of the ‘cloud computing’ business model, where data and other material is stored remotely, will present further opportunities for growth during 2010.
But investors should be wary of over-exposure to what is still a high-risk sector, as their portfolios may already have exposure through investments in the FTSE All-Share or hi-tech companies in the emerging markets.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.