The energy sector remains an attractive option for managers switching out of technology stocks. The ...
The energy sector remains an attractive option for managers switching out of technology stocks. The rise in oil prices this year has been a positive for energy companies both large and small.
Hill Samuel US Smaller Companies unit trust has increased its exposure to the sector. Jenny Hayward, fund manager at the group, says: "The sector has benefited from the 100% increase in oil prices from the lows at the end of last year. We have built up our exposure in exploration stocks and some oil services companies.
Similarly, Gartmore US Smaller Companies unit trust has also been favouring energy stocks. Hugh Grieves, investment manager at Gartmore, says: "We have been preferring natural gas stocks instead of companies associated with oil. There is a supply and demand imbalance in the US market for gas. The futures price of gas has risen from $1.85 in February to $2.75.
Hill Samuel is bullish about the medium- and long-term outlook of technology stocks but decided to take profit in a number of companies. Hayward says: "We moved out of technology stocks as we saw a short -term weakness in the sector.
"The visibility of earnings has weakened and is likely to affect the market so we have selectively taken profit by reducing weightings in some companies. In the longer term the technology sector will be strong and offer investment opportunities.
In the middle of July Gartmore also took profits in the technology sector. Grieves says: "After that the Nasdaq dropped by 13%. It is now starting to come back and subsequently we are building our weighting up in the sector again. I particularly favour companies that provide infrastructure for tech stocks.
The growth in the technology sector is having a positive effect on other areas, particularly media. Hayward, whose fund is overweight in the media sector, says: "The majority of internet companies, though growing rapidly, are not making large profits. One reason for this is that they tend to spend a huge amount of revenue on advertising and marketing.
"The barriers to entry for new internet companies are low so existing ones must get consumer loyalty through branding and advertising. As well as the money coming into the sector from internet companies, consolidation in the sector is a big feature.
Henderson American Smaller Companies Unit Trust has been playing media stocks to take advantage of the consumer boom and is overweight in the sector. Ann Hall, fund manager at Henderson Investors, says: "I have not favoured smaller retailers because of the limited opportunities to make long term gains when compared to large cap contemporaries. The consumer boom has also benefited media companies with increased advertising spending.
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