By Jane Wallace Rothschild Asset Management is overweighting the technology sector in its Five Arrow...
By Jane Wallace
Rothschild Asset Management is overweighting the technology sector in its Five Arrows UK Major Companies fund.
Even so fund manager Charles Deptford is wary that there could be a correction after the rapid rise in value of tech stocks.
He said: "We have actually been clipping back individual positions. When stocks move 25% in a few weeks, there is scope for them to lose 25% too, although we don't know what the catalyst might be."
The cash raised from sales was being reinvested in the sector. For example, although Deptford has sold off some of his stake in ARM Holdings, he has recently purchased NXT, a flat screen manufacturer.
The frenzy for tech stocks has resulted from the fact that even though the economy has been stronger this year, the company earnings which were expected have not materialised. This is due to the impact of the internet, general overcapacity and consumer price awareness, Deptford said. Investors are therefore looking for guaranteed volume growth and pricing power, which currently looks available only in the tech sector. The surge in interest has however been too quick for most of the market.
Deptford said that, with the exception of software stocks, there is a lack of stockbroker research on technology companies, to the extent where retailer Storehouse is followed by 12 analysts while ARM Holdings, which is on the point of entering the FTSE 100, is followed by only three.
Deptford said: "Tech companies are badly researched and followed by only a few people. Most fund managers and brokers have been caught out by the move. Now they are all trying to find out about the companies and increase their weightings, but it is quite difficult to know who the winners are."
Other recent purchases for the fund include general industrial stocks, which Deptford has bought at the expense of consumer cyclicals.
He said: "The market has been too quick to hit cyclicals. There is definitely more performance to come in the first half of 2000 as growth will be stronger than the consensus forecast both in the UK and around the world."
The fund is overweight resource stocks on the strength of oil prices, which Deptford forecasts will stay above $16 a barrel, and is underweight pharmaceuticals.
Deptford said: "Earnings forecasts for pharmaceuticals have been drifting downwards in the last six months. The share price performance will not be so good next decade. Prices are on a 30% to 40% premium to the market already, so they are unlikely to move much higher even on merger activity and expectations of high single digit growth."
The top 10 holdings of the fund on 14 December were BP Amoco on 6.7%, Vodafone Airtouch on 6.7%, BT on 6.3%, HSBC on 4%, Glaxo Wellcome on 3.8%, Lloyds TSB on 3.3%, Shell on 2.6%, SmithKline Beecham on 2.4%, Cattles on 2.3% and Sage on 2.2%.
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