By Les Commons The split between old-style and 'new' economy fund managers was clearly marked at the...
By Les Commons
The split between old-style and 'new' economy fund managers was clearly marked at the recent Managers for the Millennium seminar.
The event, organised by Investment Week, featured speakers from eight smaller UK fund management groups, who set out what they saw as the main challenges facing their portfolios looking forward.
At present the backers of new economy are in the ascendant as the markets continue to be driven up by the likes of media, telecoms and technology stocks. Among those enthusiastic to continue backing such companies were Adrian Paine, chief investment officer for Europe at American Express Asset Management.
His fund is actively managed on the principle that European growth is being driven by productivity gains arising from the massive increase in the sector of e-commerce, known as business to business, or b2b. He said: "Fund managers are always looking for the next growth area and we think b2b is that area."
These views were firmly shared by Sanjay Rijhsinghani, manager of Premier Asset Management's Technology Fund. A believer in the power of technology, he also identified the importance of deregulation, globalisation and financial innovation in driving growth.
Although he sees technology valuations as "slightly above the comfort zone", he still believes new technology offers the greatest opportunity for extended growth. He said his fund must be fully invested, adding: "Can we afford not to be? I don't think so."
Another convert to the technological revolution is Logie Cassells, lead fund manager on Capel Cure Sharp's Hallmark Portfolio funds. He also sees growth driven by the creative destruction of technological innovation, along with the added influence of interest rates that are likely to remain low for many years, and the high savings of post-war babyboomers.
This last point may be more important in Europe, as the pensions market deregulates, but savings rates in America have seen no significant growth despite a booming equity market.
Cassells still sees technological innovation driving growth. On excessive valuations, he accepts the markets are in uncharted waters, but argued investors must "take a leap of faith".
Bill Brown, manager of Friends Ivory & Sime's Aim Trust was yet a further believer in technological growth. Concentrating on the Aim market he said he recognised the inherent risks involved, and described Aim as "venture capital with a quote".
Brown's portfolio has grown along with some of today's market leaders: Zergo (now Baltimore Holdings), Infobank and Affinity all began life on Aim. However, he has reservations about dot.com mania, preferring to invest in companies providing tools to internet businesses rather than buying shares in internet businesses themselves.
Henry Thornton, head of emerging markets equities at Colonial First State Investments, also sees all things technological driving growth. He does, however, see far more potential for growth in the world's emergent economies and is particularly keen on the larger markets such as Korea, India and Taiwan.
One favourite company is Taiwan's SK Telecom. It is the fifth largest supplier of mobile airtime in the world and has better growth prospects than Vodafone-Airtouch, yet it trades on a P/E ratio of 15 rather than 40.
He believes this anomaly will be eroded, and in emerging markets there is now "scope for the 18-month bull market to run for a couple more years".
Mark Tyndall, manager of the Apax Artemis UK Growth Fund, though not a technophobe, offers a word of warning about the inherent risks of tracker funds chasing technology prices higher. He said: "Recent history has shown that tracker funds belie the notion that stock markets are efficient." As money and tracker funds chase prices and allocations higher, earnings cannot meet expectations.
Although he said he did not want to be seen as a dinosaur, Colin Morton, manager of the BWD UK Equity Income Trust, remains a firm believer that the "old" world still offers value and growth opportunities, both as regular income investments, or as potential growth stocks for the future.
When talking about current market valuations, he turned to Oscar Wilde's quote about cynics as people who "know the price of everything and the value of nothing".
The last word went to Colin McLean, managing director of Scottish Value Management. He sees both value in growth stocks and growth in value stocks with the trick being to find the next tracker stock early, enabling a purchase with P/Es in the low teens.
He said: "For the true stockpicker, there is value in growth."
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