Funds for Tapping the Technology Sector

The tech industry has had a somewhat turbulent history but these funds use differing strategies to find the best opportunities in the sector

Marianne Weller 8 May, 2013 | 9:00AM

The technology sector has experienced considerable industry change over the last three decades. In the 1980s we saw the move from the mainframe computer to the PC; in the 1990s we witnessed the advent of the Internet, with this period characterised by the dramatic appreciation in the stock prices of technology-related companies. During this period, from its IPO to the end of 1999, Amazon (AMZN) surged over 300% and other names, such as Yahoo! (YHOO), posted similar returns.  However, this value was subsequently destroyed when the dotcom bubble spectacularly burst, with the MSCI World Information Technology index falling by over 80% by early October 2002. Despite a short-term bounce from these oversold levels the sector then experienced a period of consolidation underperforming the MSCI World Index during the equity bull market from March 2003 until 2007.

However, over recent years, the sector has seen both strong absolute and relative performance. According to IMA sector data, the average technology fund is ahead of all other equity sectors, with the exception of the US small cap sector over five years to the end of March 2013. The past five years have seen some interesting developments in the sector, with themes such as cloud computing, mobile computing and social networking coming to the fore. At the same time, the more mature Internet retailing revolution has continued to march apace.

The strength of the technology investment theme from 2009 came from the combination of these growth opportunities and the strong industry-wide company dynamics. Many technology companies learned from the crisis of 2000, and went into the market turmoil of 2007/08 with strong management and robust balance sheets. Against an economic outlook that was—and remains—uncertain, the sector has benefited not just from these factors but also from its ability to respond quickly to change with constant innovation in a broadly deflationary environment. The sector delivered strong absolute and relative performance in the market recovery of 2009/10.  Fast-forward to 2012/13 and technology continues to offer the combination of growth potential and company quality with a number of key technology companies having robust balance sheets and high levels of cash. This also supports the prospects for dividend growth.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Altaba Inc  
Amazon.com Inc3,200.00 USD0.00
Apple Inc383.68 USD0.00
Janus Henderson Global Technology A Acc2,648.07 GBP0.53
Polar Capital Global Tech Inc GBP62.25 GBP0.95

About Author

Marianne Weller  

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