Is it time to take a new look at technology?

5 May 2010

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.

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