The technology sector has undergone some radical changes since the turn of the millennium, but has now matured into an accomplished performer.
During the 1950s Elvis Presley was a groundbreaking rock and roll star. However, during the 1960s his halo slipped as he starred in many mediocre films. So in 1968 he took the bold decision to reinvent himself as a live performer in a TV special, which revitalized his career. You might wonder why I mention this, but I do see parallels with the technology sector.
More than a decade ago, technology was fashionable. Investors were certain that technology companies would revolutionize the world. The problem was that it was extremely difficult to tell which companies would emerge as the winners. Many floated based on ideas rather than proven technologies, and in the subsequent fall-out many turned out to be nothing more than hot air.
Fast-forward a decade and I believe technology, like Presley in 1968, has reinvented itself some of the promise of ten years ago is finally being fulfilled. Google is the dominant search engines globally, a mature company making huge profits. It has changed the face of advertising — many companies now focus spending on the interne rather than traditional TV or magazine advertising.
There is no doubt that the technology sector is: home too many more mature companies than ten years ago, and this makes it a very different investment proposition. However, it is still a relatively risky sector with many different facets, making it important to invest with a proven team. In our view the GLG Technology Equity Fund makes a first-class choice. It is managed by Phil Pearson and Anthony Burton, who between them have 28 years’ experience in the sector. They focus on both consumer and corporate demand, simply looking for the best opportunities across the globe.
Consumer demand has so far remained remarkably resilient during the downturn. Sales of LCD TVs, for example, grew by 35-40% worldwide in 2009. A key factor driving this is price. As these items have become cheaper, they have increasingly been seen as ‘disposable’, allowing manufacturers to sell replacements more easily. Additionally, emerging market demand for technology such as mobile phones has continued to soar, and this fund invests in areas the managers believe are set to benefit.
However, technology is about much more than just the latest gadget. Business investment in essential technology is likely to increase markedly over the coming years. The credit crunch squeezed corporate budgets, and IT spending was slashed. As a result, much hardware is in dire need of replacement. Furthermore, as companies adjust to a lower growth world, they will strive to maintain profits by cutting costs. Investing in more efficient technologies is one of the key methods of achieving this goal.
Technology has matured into a sector with many cash-rich companies that are profitable and, most importantly, growing. Many are also unburdened by legacy problems such as pension deficits. Provided they are comfortable with the risks, I would urge investors to put aside past misconceptions about technology and consider the GLG Technology Equity Fund as a long-term addition to their portfolio.