Fund managers are being more particular in their investments in the technology sector, focusing less...
Fund managers are being more particular in their investments in the technology sector, focusing less on IPOs and dot.coms.
David Ballance, head of European equities at Rothschilds Asset Management, says his portfolio is neutral on telecoms because quite a lot of the good news for the sector has been factored into prices.
Recent results from Germanys leading telecoms companies did little to encourage his stance. DaimlerChrysler AG and Deutsche Telekom shares fell despite the companies reporting strong first-quarter earnings.
Ballance still wants to be overweight in media stocks as he feels there will be more acquisitions of content providers. Of particular interest to Ballance is VNU, which is active in 18 European countries, and Lagardère which caters to the media and technology markets.
Ballance is upbeat about the prospects for telecoms suppliers and chip makers.
He has holdings in Europe's leading players Nokia, Ericsson, Alcatel and semiconductor manufacturer ST Micro.
However, he is not so keen on internet service providers or web design agencies as he feels the barriers to entry are often not high enough.
Overall Ballance is positive on Europe but still feels some countries may be reaching the peak of their output while GDP lags behind.
Another factor to take into account when looking at attractive sectors in the market, is what stage cyclical stocks are in.
He adds: "Cyclical stocks generally do well in the first quarter but, because technology, media and telecom stocks were doing so well, nobody noticed the cyclicals had peaked in the first week of this year."
Michel Legros, head of the European team at Mercury Asset Management, is more cautious in his exposure to TMT stocks.
He feels there are lots of good opportunities but also lots of dangers, as the fallout over the last few weeks has shown.
Both managers agree that the recent talk of mergers between European bourses would be a positive for the technology sector as it would likely result in a greater emphasis on listing quality stocks.
Legros says bourses need to regain their discipline when listing companies with track records below three-years.
Companies with shorter-track records are after far more speculative providing the promise of potentially high returns but also a greater chance of losing investors money.
Legros says: "I think it would lead venture capitalists to do their job, taking the early days risks, and would therefore weed out the IPOs. This would probably result in a less volatile tech sector."
Legros says he would also welcome a collaboration on settlements, which can take up to a month on some bourses. "You sell stock on one market in order to buy on another but you end up waiting four weeks before the money is freed," he adds.
Mohamed Ali Bernat
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