By Robert Stock It could take as much as 15 years for many of the recently de-rated technology comp...
By Robert Stock
It could take as much as 15 years for many of the recently de-rated technology companies to reach their pre-March price peaks, according to Simon Roberts, fund manager of the Lazard UK Alpha Fund.
Roberts, whose Alpha Fund celebrated its first anniversary on 4 February this year, compares the current situation in much of the technology market to the plight of media companies which peaked in the 1980s.
Consequently the fund, which is run as a tight portfolio of around 45 to 50 stocks with an investment process based on ranking stocks within sectors, has been brought back from an overweight to a neutral position in technology.
The fund is also running a mid cap bias and has a lower overall P/E than the FTSE 100 in which it has an underweight position of 72.9% of the fund compared with 82.4% of the FTSE All- Share. Some 20.4% of the fund is invested in mid caps compared to 13.4% of the index, but Roberts is underweight small caps with a 2.9% exposure compared to 4.2% of the index.
Roberts said: "What is clear now is we are through this period of irrational exuberance in regard to technology. And we are going to look back at some of those share prices earlier this year and see them as sheer fantasy.
"It could take up to 15 years to achieve those price peaks again. A comparison can be made by looking back to the 1980s at advertising agencies. The businesses did not go away but it probably took some of them 10 years to achieve their peaks in terms of share price."
According to Roberts, fund managers are faced with the task of picking which of the existing companies would survive long enough to do that.
This uncertainty, he said, would result in a continued period of general underperformance in the sector until profits caught up with earlier valuations.
In contrast the period of outperformance of some of the old economy survivors, particularly those that had got their e-commerce strategies in place, has been strong, according to Roberts.
The group's own performance attribution analysis of the portfolio since launch to the end of October has found that the greatest contributor to positive returns had come from resources, cyclical services, IT, non-cyclical services, financials, and general industries.
Over that period the sectors that resulted in capital loss for UK Alpha were non-cyclical services, including pharmaceuticals, basic industries and utilities.
Roberts described the fund as a stockpicking portfolio using a mix of streamlined discounted cash flows, sum of the parts analysis, historical value comparisons, and accounts analysis.
According to Standard & Poor's the fund has posted offer to bid returns of 14% over the 12 months to 8 November, with three month performance to the same date of 2%.
That compares to UK All Companies sector averages of 6.6% and 1.7% respectively. The fund is ranked 42 out of 291 funds and 102 out of 304 funds over those time periods.
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