By Mark Colegate Gartmore believes the market is correct to price in a bright future for the tech, m...
By Mark Colegate
Gartmore believes the market is correct to price in a bright future for the tech, media and telecom sectors.
The group's UK fund manager Eric Moore said that while these sectors have been strong performers in the past 12 months, they have much further to run and will have a hugely influential impact on the rest of corporate UK. Back in 1990 these sectors made up 15% of the market and that has now risen to 35%.
Moore said: "Is it here to stay? Is this a new world? The market says 'yes'."
He pointed out that as a by-product old fashioned stocks were in decline. He said an industrial stock such as GE had had to redefine itself as a tech company, Marconi, while other businesses had given up their stock market listings. As a result the market has become more volatile with higher P/Es and lower yields.
Moore added: "If you buy a tracker your fund has almost 40% exposure to tech, media and telecoms. We think it is still early days."
He said that in the US the IT industry makes up around 27% of the market whereas it is still only a few per cent of the UK. The growth rates Gartmore predicted are startling, with e-commerce projected to move from £22bn this year to £1 trillion by 2004, a 260% compound annual growth rate.
Even so the group remains wary of buying every new development available. Moore said m-commerce, taking place over mobile phones, was unlikely to be a significant market until 2005 by which time a successor would have come along to Wap technology. He remained more positive about what he termed "t-commerce". Moore added: "Most people have got a television and we will see high levels of impulse purchasing."
The impact of these developments on UK corporates will have positive and negative effects, according to Gartmore. On the plus side companies will have increased distribution and reach, reduced processing costs and will be able to move into new markets very quickly.
On the down side customer persistency will fall, there is likely to be a significant short term increase in costs as companies increase their IT spend and marketing budgets, and pricing visibility over the internet will keep prices down for consumers.
In such circumstances Gartmore is focusing selectively, according to Moore. It is buying telecom infrastructure businesses such as Marconi, logistics providers such as Ocean, suppliers of software allowing businesses to increase their internet presence, such as Logica, and telephone operators including Vodafone.
At the same time Gartmore is looking to buy into old economy companies which can leverage their franchise, such as the Hilton Group, now looking to build up its gambling business in Asia. Moore said this is a growth market but the costs of this business development are relatively low.
Moore said: "I do not need to take positions in unproven start ups to make money."
His advice on tech, media and telecom stocks was to be selective, as the areas of spend such businesses benefited from in the 1990s may well be very different during the forthcoming decade.
Moore said he had seen fast growth by IT software and services companies which had focused on front office applications and the internet rather than on back office applications.
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