As the technology boom continues fund managers are still keen on internet-related stocks. While pure...
As the technology boom continues fund managers are still keen on internet-related stocks.
While pure technology plays make up only 4.5% of the FTSE All-Share by market capitalisation there are plenty of other, larger, sectors benefiting from it.
One such area is the media which is enjoying a boom partly due to the growth of the internet.
The sector makes up 5.7% of the All-Share but the Norwich UK Growth Oeic fund has a portfolio exposure of 8.5%. The fund's manager David Lis is favouring stocks within the sector which focus on e-commerce. He says: "Over the Christmas period it seemed every second advert on television was for an internet site."
The good performance of advertising and media companies is a by-product of the increased number of internet sites being launched, according to Lis. As the barriers to entry on to the web are virtually non-existent so incumbent internet companies need to spend a lot of money on advertising and marketing to create a brand.
A company which Lis does hold is the Daily Mail Group which over the course of last year saw a share price rise from £30 to about £43. As well as having a good traditional business in newspapers it is benefiting from its internet subsidiary.
Lis says: "The group's internet search engine UK Plus is proving popular and the group has launched some good sites, such as This is London and This is Money."
Another stock which is benefiting from producing a successful search engine is scoot.com, adds Lis. He bought into the company at 20p and the shares are now priced at £1.50. He says: "Though the search engine is one aspect of the business the company is largely devoted to call centres where callers can ask for among other things plumbers in their locality."
While Lis is invested in other areas of the market his portfolio is concentrated on technology with a 20% exposure to telecoms, 7.5% weighting in IT hardware and 16% in IT software. An area which Lis does not favour and is underweight in is banks.
He says: "The inertia which has supported the sector in the past is disappearing. It used to be the case that people would not switch their accounts to other banks but there is a developing trend of investors switching their accounts, particularly into internet banks."
The Schroder UK Enterprise unit trust, managed by Philip Hardy, is also overweight technology stocks. Hardy is confident that this will not be the only section of the portfolio which achieves growth this year. Electro Component, an electronics distributor, should achieve double earnings growth in 2000, according to Hardy.
He first invested in the company in October 1998 at £3.30, buying 3%, the shares are now valued at £6.50.
Hardy says: "The management is very efficient with delivery guaranteed the following day. By and large the company is growing organically moving into France, Germany and Japan but it has also acquired a business in the US."
Another stock which Hardy believes may perform well this year is Provident Financial. The company provides credit to people in the C2 and DE social categories and should benefit as high street banks get rid of their marginal customers to cut costs, according to Hardy. The fund has held the stock for four months initially buying into the company at £7 since then the price has fluctuated rising to £10 but it has now returned to £7. Hardy says: "The price has been volatile due to concerns over bad debt. This year in an environment of steady growth concerns over bad debt should ease and the share price will rise."
One sector Aberdeen Asset Management believes has been overlooked is pharmaceuticals. Though the stocks in the sector will not show the growth achieved by technology companies they should benefit from the UK's ageing population and M&A activity.
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