US economic improvements look to be feeding through to the sector
SG Asset Management believes the outlook for technology stocks is favourable and should benefit from evidence of a recovery in the US economy.
Hugh Grieves, who works alongside Alan Torry on the SocGen Technology unit trust, said improvements in the US economy are feeding through to the technology market and the sector is highly leveraged to an upturn.
Grieves said: 'The Nasdaq rallied through April and June last year in anticipation of a recovery that never happened. People will ask what is different this time and the answer is that the index is now firmly in positive territory. The US economy is turning and that is feeding through into companies' results.
'Technology companies are now reporting that business is getting better for them. The fourth quarter of last year was better than the third quarter of 2001 and, so far, the first quarter of this year has looked better than the fourth quarter of 2001. We may be past the worst and we like the way the first quarter looks so far.'
Grieves added that this has been seen in revenue numbers, with companies such as SAP producing results that have surprised the markets. SocGen Technology has around 80% of its portfolio in the US.
Top 10 holdings for the fund include Tibco Software, making up around 2.1% of the portfolio, which Torry said is seeing its new business order flow improve.
He said that semiconductor companies, including Intel and Integrated Circuit Systems, have reported stronger than expected demand.
Other stocks in the top 10 include Peoplesoft, which makes up 4.1% of the portfolio, Microsoft, which accounts for 3.2%, and Cisco Systems, which makes up 2.6%. The remainder is made up of Veritas Software, Analog Devices, Siebel Systems and Samsung.
Torry expects more technology companies to report improving business conditions during 2002 as he sees US and European economies returning to sustainable growth within the next six months as tax and interest rate cuts take effect.
Around 1% of the portfolio is invested in UK technology companies. Grieves said this can be explained by the fact there are not many pure technology companies in the UK with stock market listings. The UK portion of the portfolio is accounted for by Vodafone.
On a global valuation basis, Grieves finds UK technology companies continuing to trade on a higher premium.
Torry said there is a lot of innovative work being done at the smaller end of the technology spectrum in the UK but the bulk of these companies are not coming to the market.
In terms of sector split, more than a quarter of SocGen Technology is in application software, which makes up 28.3% of the portfolio.
Other large sector weightings include semiconductors, which account for 16.4%, telecom equipment, which makes up 14.1%, and medical technology, which has a weighting of 9%.
The unit trust has 9.4% in cash and the smaller sector weightings include 2.9% in internet stocks, 3.9% in telecom services and 5% in computer systems.
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