Smaller companies fund managers expect volatility in new economy stocks will continue throughout the...
Smaller companies fund managers expect volatility in new economy stocks will continue throughout the year, but anticipate recovery towards the end of 2000.
Alistair Currie, smaller companies fund manager at Edinburgh Fund Managers, says he expects further volatility.
However, expected improvement at year end is based on anticipated positive news flow emerging after the summer. He says this will lead to better sentiment towards smaller companies. An improvement in Nasdaq will also lead smaller companies to higher levels.
Roger Whiteoak, smaller companies fund manager at Rathbones, expects smaller companies will have to ride out short term volatility. He says sentiment will improve later in the year as positive news from these companies starts to emerge.
He says: "Currently, we are seeing high valuations, against a difficult stock market background. However, there should be strong news flow towards the end of the year after people come back from summer holidays, the orders start coming through and there are product announcements. In the meantime, we expect that more volatility is imminent."
Whiteoak believes negatives which are bearing down on the smaller companies sector include rising interest rates and rotation from growth into value companies.
Currie says: "Our strategy is to stick with the companies that we know and like. We invest for the three to five year term, so we will just ride out the volatility, but expect the market to end the year at a higher level."
Among smaller new economy companies which were hard hit by the correction, but that Currie expects to bounce back are Autonomy, London Bridge and Imagination Technology.
The recent correction, according to Currie, meant that new issues have not been met with the same demand as they would have if the bubble had not burst. He says: "I've bought a few new issues in recent months. This included Innovation Group, the supplier of software for the insurance industry. If this company had its IPO three to four months earlier it would have been hugely over-subscribed, rather it was only marginally over-subscribed. That stock has risen by 61% since its started trading, only a few weeks ago.
"The other is Wealth Management Software, a similar company which supplies software to the financial services industry. That company was only just subscribed, whereas if the IPO was earlier in the year, I expect that it would have had a lot more interest. That company has risen 30% in recent weeks." Whiteoak says the Rathbones fund will ride out the volatility by maintaining a healthy balance between tech and non-tech companies.
Companies that Whiteoak likes include the Cad Centre, which develops computer aided design software and Staffware, which develops workflow software. Negatives for companies in the technology sector include fierce competition, a fast moving environment and changing technology, Whiteoak says. "Companies are getting ahead by aggressive investment and recruitment, meaning overheads are rising rapidly."
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