Sentiment for UK tech stocks is positive for the fourth quarter, although the returns are on the sam...
Sentiment for UK tech stocks is positive for the fourth quarter, although the returns are on the same scale as those seen in the last quarter of 1999.
Amanda Forsyth, fund manager of the Standard Life UK Equity Growth Fund, says: "We have been going through a period of volatility as people try to predict growth going forward. The price correction is still going on but by the end of the year we will have a more realistic earnings growth expectation."
For the first three quarters of 2000, the FTSE IT Software and computer services index has fallen 19% while the FTSE IT hardware index has risen by 3.24%.
Forsyth says she is underweight software and IT services but believes other areas of the market should pick up over the next few months.
Marconi, making up 5% of the fund's portfolio, is a stock that Forsyth especially favours. She says it is an IT hardware company that has a very focused business and that is winning new business at an impressive rate.
Marconi concentrates on data transfer, an area which Forsyth believes is showing rapid growth and good returns.
Eric Moore, co-manager of the Gartmore UK Growth Fund with Tim Gregory, says it is difficult to make short-term predictions for a quarter. He says the forecast for technology for the fourth quarter of the year is unlikely to match that of 1999 as that particular boom was an extreme move, which had never been seen before, and is unlikely to be seen again.
Moore says the outlook for technology is positive over the long term as, over the next few years, people will become increasingly reliant on technology on a day-to-day basis.
Qualifying this, Moore says that within this growth market, however, it is important to focus on those companies that will be long-term winners.
Moore says some stocks are maintaining highs, although not their absolute highs, after the market correction in March of this year.
Stock picking is now an important part of the investment process in the technology sector and companies with less robust business models have fallen as a result of the market correction, while the bell-weather companies are still performing well, he says.
Moore says: "It is important to avoid those technology companies which are effectively mutton dressed as lamb, that is those which are priced as world beaters, but which are not in actual fact."
One stock which Moore is keen on is Logica, which makes up 1.5% of the fund's portfolio. Moore says its share price peaked at £29, and is presently at £21. Benchmarked against the FTSE All Share, the Gartmore fund is 1% overweight in this IT services company, which is one of Britain's largest technology companies.
Logica is involved in IT systems integration and consultancy. Moore particularly likes its concentration on three vertical areas: telecoms, energy and utilities, and financial services.
Moore says UK technology stocks are still on relatively high valuations but this is no longer do to the dearth in the number of investible companies but has more to do with the immaturity of the market.
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