By Adam Lewis The best long-term growth opportunities remain in the technology sector, according ...
By Adam Lewis
The best long-term growth opportunities remain in the technology sector, according to Alistair Currie, head of smaller companies at Edinburgh Fund Managers.
Currie's Edinburgh Smaller Companies trust is overweight in software and computing services at 16.5% of the trust, media makes up 16%, speciality and finance 10% and health stocks 8%. The trust is more aggressively managed than its sister trust, Dunedin Smaller Companies, on both a stock and sector level.
The long-term aim of Edinburgh Smaller Companies is oriented towards the technology and growth markets. It currently has no telecom holdings in the portfolio, and in adopting a bottom-up approach, Currie views technology and media as two separate investment areas.
He warns that there needs to be an increasing selectiveness towards technology companies as equity markets will not provide capital for those that continue to disappoint.
Currie believes that the selling of small-cap growth stocks has now reached a plateau, and while the market may be volatile in the short-term, the index is expected to show positive returns through the remainder of the year.
Currie said that although the first quarter of 2001 has been horrendous for small caps and the growth oriented sectors, he is optimistic that over the next six months there will be an upturn.
He added: "For small-cap valuations, all the bad news coming from the market has been reflected in the price. Over the next 12 months it will get more good news because of the likelihood of more interest rate cuts, meaning a pick-up in growth, sentiment, business confidence and willingness to invest."
Currie said the recent bounce in the technology sector has helped him tidy up his holdings, now some 85 stocks, around one-third of which are in the tech, media and telecom sectors. His top holding is in the health tech company Medisys, which accounts for 5.1% of the trust's net assets. Currie said he bought this stock at 27p and at its peak it was worth more than 150p. It is currently worth 87p.
Other top holdings include Brewin Dolphin, Incepta Group, BWD Securities, Bloomsbury Publishing and Electronics Boutique.
Over the last 12 months to 31 March 2001, the trust's performance has been hit by its overweight positions in the tech, media and telecoms sectors. The NAV has fallen by 33% while the FTSE SmallCap Index has only fallen by 5%. The trust's discount has widened out to 18%, although this sits just below the 12-month sector average of 19%.
Currie said: "We take a three to five year view on all our stocks and there are going to be periods within that time when things go badly. We view gearing as a long-term vehicle for the trust, the general level of which has been 15%, although at one stage it did drop to 2%.
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