the semi-conductor and security markets look set to lead a recovery in the global technology, media and telecoms sectors this year
The global technology, media and telecoms sectors are set for a recovery this year, according to fund managers operating in the offshore market.
While certain areas of this diverse sector may see a change of fortunes, other areas could remain a poor investment, according to Jeremy Gleeson, co-portfolio manager at Reabourne, the appointed adviser for the Close Finsbury Technology fund.
'Certain parts of the sector are in better shape than they were a year ago, other areas are still in rough shape,' he said. 'The semi-conductor market, for example, is better than it was 12 months ago. Demand disappeared rapidly as the dot.com bubble burst and PC and mobile phone spending dropped off.
'A lot of companies cut back production and brought investing to reasonable levels. If there is a recovery, they are in a good position to gain from that, because they have stripped out a lot of the costs.'
Security will be a winning area due to the increasing number of virus attacks and the repercussions of 11 September, according to Gleeson.
Software, particularly that which enhances productivity, also has a promising future, as companies will want to increase productivity without raising overheads in the face of a sector recovery, he added.
The PC market, historically a big driver for the sector, has matured and is a bad investment, said Gleeson, and the mobile phone market is also looking weary, but could see an upturn when new models come out with new technologies.
The Close Finsbury Technology fund is the best performer in the sector, having posted a negative return of 9.19% in the year to 13 March on a total return basis.
While Reabourne is a tech specialist company, it is not 'socially blinkered' he said. 'If the finance sector is having a rough time, it will affect technology.'
The fund is invested 30% software, 20%-25% semi-conductors and 15% communications, with the rest in design, energy technology, hardware, electronics and components. Investing broadly is designed to take some of the volatility out, said Gleeson.
'The way we invest is to put 0.5% to 1.5% of the fund into each holding and we build up as we gain confidence. We are able to catch those that are not going to work early.
'We have more than 80 investments in the portfolio at the moment ' no big bets. The largest holding is just over 4.5%. We are not going to get killed if one company does shock us.'
Timothy Terrell is product manager for the US-based Seligman Global Technology fund, which has posted a negative one-year total return of 10.96%.
He said: 'On the macro-economic level, we believe the effect of last year's substantial US Federal Reserve Board's rate reductions, the implementation of the recent US tax cuts, and continued low US inflation will provide a good backdrop for the US tech market, and equities in general, in the year to come.'
The Seligman Technology Group takes a long-term approach to the sector.
'This has led to a process that stresses fundamentals and emphasises valuations,' said Terrell.
'To find opportunity in the current US technology market, investors must look beyond broad technology categories to specific stocks and sectors.'
The group focuses on attractive valuations relative to expected earnings or cashflow, robust growth prospects, strong intellectual property and business franchise, high profit margins and return on capital, strong management and market leaders and contenders.
'We remain optimistic about the long-term prospects for technology,' said Terrell. 'We believe demand fundamentals for technology firms will probably recover later this year, presenting us with attractive buying opportunities over the next few months. We will look to invest in companies we believe are prepared to endure the current difficult environment and, on a relative basis, may emerge stronger for it.'
Roland Gillis, managing director and senior portfolio manager at Putnam, said electronics and software are good investments in the face of recovery.
'Electronics came down hard and so it is primed to have a great leverage on the upside,' he added. 'Companies have deferred huge amounts of money on software, so that also makes a good investment.'
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