By Ruth Alexander It is a seamless world, where outperformance will not be achieved by investing so...
By Ruth Alexander
It is a seamless world, where outperformance will not be achieved by investing solely in old or new economy stocks, according to Bill Mott, head of UK equities at Credit Suisse Asset Management.
Speaking at the recent Investment Week Markets Forum 2001, Mott said he is concerned about the valuations in some of the high growth sectors, although Credit Suisse has bought some media and software companies in its income funds for the short term.
Mott predicts that, within the next 10 years in the UK, house-builders and food manufacturers will stand at a premium to the market because of the reliability of their earnings, although they presently stand at a 70% discount to the market.
Technology companies, however, which are currently at the forefront of market interest, will trade at a discount to the market because of their high-risk profile, Mott said.
The problem with investing in the technology sector, according to Mott, is that companies have to spend a lot of money protecting their market positions.
He said: "Technology is revolutionary, not evolutionary, and the sector is changing faster than ever before, making investment in it very risky. It is absurd that brokers try to make forecasts for companies at the forefront of technology."
In answer to Mott's argument, Scott Lewis, the manager of the Credit Suisse Global Technology, Media and Telecoms fund, said despite prolific profit warnings, there is still a lot of potential in the technology sector.
He said the near term looks reasonably positive as the US has seen two recent rate cuts as well as having a tax package to look forward to.
Lewis believes the long-term outlook for technology is promising. He said: "The demand for broadband has increased, even in the face of an economic slowdown.
"Nanotechnology is also underway, which will make many exciting applications possible. It will, for example, increase the capacity of data storage by a factor of 40. In a few years time, a watch could hold 2,000 books, which are 3,000 pages long each."
Lewis said greater information flow will also be facilitated by technological advancement in the near future with the application of non-light diffusing photonic crystals to fibre optics.
In addition, he is encouraged by the progress of medical technology, and the advance of personalised medicine using DNA information, in particular.
Lewis also had a word of warning for technology investors. He said: "It must be remembered that new economy stocks are cyclical. Twelve months ago, it was said that new economy stocks could go through a recession but that is fallacious.
"Also, times change. It is possible that, in the long run, technology might turn into a commodity as electricity did."
Mott manages the Credit Suisse Income fund, which is ranked 3 out of 84 funds in the UK Equity Income sector over three years to 30 January 2001. Over this period, the fund has returned 47% on an offer to bid basis against a sector average of 21.3%.
Predicted to hit £180bn AUM
Our regular video series continues
Speech to take 20 minutes
£60m AUM to Sanlam UK