By Jenne Mannion Dresdner RCM will maintain overweight exposure to technology companies in its UK Sm...
By Jenne Mannion
Dresdner RCM will maintain overweight exposure to technology companies in its UK Smaller Companies unit trust, despite the recent shakeout in the sector.
Andrew Impey, manager of the £263m portfolio, said he is committed to a long-term investment approach in emerging growth companies across a range of sectors and the recent dip in tech stocks will not deter him from this approach.
The portfolio contains around 100 holdings and invests in companies within the parameters of the Hoare Govett Smaller Companies Index and the portfolio is constructed from a purely stock picking approach.
Impey said: "We focus on identifying growth companies at a relatively early stage of their development as listed companies.
"Our bottom-up growth approach has naturally led to an overweight position in technology companies, for example IT, software, media and telecoms which collectively make up 44% of the fund.
"Our approach has been to invest in companies that benefit from the internet and e-commerce revolution with viable business strategies. For example, we like those that enable the business-to-business arena, data encryption or owners of digital content.
"We have seen a very unselective run in tech stocks, but we have always subscribed to the view that a company needs to offer more than just being classed in the technology sector or as a dot.com".
An example of a fledgling dot.com that Impey does own is channelfly.com.
While in its early stages of development, channelfly has an existing business firmly based within the old economy.
He said: "It is recognised by the music industry as having a strong position in promoting unsigned bands to a youthful audience through the Barfly Club, where up-and-coming bands play and the Fly Magazine.
"It is using this position to build music and video rights and to promote its newly established web site. It has also acquired the Student Broadcast Network, which provides 24-hour radio programming to 46 student radio stations."
Outside the tech, media and telecoms sectors, Impey said there are strong opportunities in seeking specialist companies. An example is Alba, in the leisure & entertainment sector, which is a distributor of value-for-money consumer electronics products where it also owns brands such as Bush and Hinari.
Impey said: "Alba is now evolving a strategy to sell heavily-discounted internet enabled televisions if the customer signs up to its ISP, ensuring they have a recurring revenue stream from the customer rather than a once-off sale of a television."
The most underweight areas in the fund are engineering, where domestic manufacturers are being crippled by the strength of sterling, which is making exports difficult and imports attractive.
Impey said: "I expect the rising interest rate cycle will end toward the end of the year, which will lead to people putting more money into cyclical stocks, which will be beneficial for small companies."
Top five stocks in the fund are Infobank with a 5.66% portfolio exposure, Cedar Group at 5.4%, Alphameric at 5.27%, Fibernet Group at 4.50% and Atlantic Telecom at 3.69%.
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