Net prophets

Investing in technology is a growth industry - but along with the rewards there are some big risks. By Rachel Fixsen

The first thing that hits you when you watch a 1970s sitcom is the sad hairstyles. But the second thing you notice is how fast technology has moved on. Video players, microwave ovens, computers and mobile phones have now all become part of our everyday lives.

The world is in the throes of a technological revolution as important as the industrial revolution, says Matthew Orr of stockbrokers Killik & Co. Investing in the companies pioneering this technological change has brought some impressive returns. "It is going to be the largest growth industry over the next 20 years," says Gavin Haynes of independent financial advisers Whitechurch Securities.

The Internet, for example, has taken off in the last four years, with Internet access now doubling every 18 months. And many believe we have not even scratched the surface of the medium's future impact on daily life.

So if you invest in the technology sector you could see staggering returns. Internet search engine Yahoo, for example, has been one of the shooting stars of the sector, with its shares up around 700 per cent in the last year. But you could be in for a bumpy ride.

Technology is one of the highest risk equity sectors. Although share valuations are always based on future profit potential rather than current earnings, valuations for technology stocks are extremely high because of the rapid expansion forecast in their markets. This, coupled with the fact that many of these companies have not even made a profit yet, means that if business growth disappoints the markets, the shares could see sharp falls.

And as with any revolution, there will be casualties. The successful companies will go on to witness their innovations becoming the industry standard, while others will fall by the wayside - remember Betamax? Picking the winners of tomorrow is not always easy.

"The important thing is to do research into the company," says Matthew Orr. "Don't go in on the back of a share tip someone gives you in a pub. Go to a broker and get them to produce some research," he says.

Technology companies tend to be global operators. Many are US companies and quoted on US stock exchange Nasdaq. Investing directly in foreign companies can increase your risk, not least because of your investment is vulnerable to currency fluctuations.

A pooled investment such as a unit trust or investment trust saves you from the logistical complications of buying shares abroad. For the technology sector, pooled investments are a particularly good idea because of the high risk nature of the sector. Investments of just pounds 1,000 can be spread across a range of sometimes 700 technology companies.

Gavin Haynes recommends the SocGen Technology Unit Trust. It is run by Alan Torry and Chris Godding, and holds shares in most areas of technology including biotechnology, semi-conductors, networks and telecommunications.

The fund was only launched 11 months ago, but according to financial data provider Moneyfacts, it already ranks fourth out of 200 international growth unit trusts for performance over the last three months.

Marie Thorne, one of Whitechurch Securities' clients, invested pounds 2,000 of a total portfolio of pounds 60,000 in the Aberdeen Prolific Technology Fund at the end of November 1996. Her investment has now grown to pounds 4,077. Another top technology unit trust is the Henderson Global Technology Fund. Mr Orr recommends the Finsbury Technology Trust, which is an investment trust. "It has been a stunning performer, and you can still buy it at 10 per cent discount to assets," he says.

Anyone aiming to transfer existing PEP funds into a technology fund should consider the CF Technology Fund, says Mr Orr. This is the only fully qualifying unit trust investing in technology, as it is weighted towards European telecommunications stocks, he says.

Some technology funds have their own particular focus. The Finsbury Technology Trust, for example, invests principally in companies which are heavily driven by research and development rather than companies primarily driven by service, says Mark Mathias, the head of investment funds at Rea Brothers, which owns the Finsbury Technology Trust.

How much should you invest in technology shares? "The average portfolio should contain no more than 10 per cent... because it is going to be volatile," says Mr Haynes. Technology shares should be seen as a long-term investment - 10 years or more rather than five years which is generally seen as the minimum for any equities-based investment.

Shares in the sector have certainly soared. But is there a danger the gains might already have been overdone? "There are some signs of speculation, especially in the US," says Chris Godding, one of the fund managers of the SocGen Technology Trust. "The amount of retail buying we're seeing in Internet stocks is a bit worrying," he adds.

Market players often say that it is time to sell a stock when retail investors - as opposed to the large institutional investors such as pension funds - have started to buy. Sadly, private investors are seen as the least well-informed type of investor. "We think over the next couple of months there will be some concerns about year 2000 issues in technology... but those problems will be discounted by the middle of the year," says Mr Godding.

Which area of technology will see the fastest growth in the future? Communications, says Mark Mathias. One of Finsbury Technology Trust's most successful holdings has been Psion, which has now linked up with mobile phone companies to produce hand-held devices which can be used for communication by talking, but also for messaging. "This used to be pie in the sky a couple of years ago, but now it's definitely going to happen," says Mr Mathias.

Data storage is a growth market too. "To us, it is as exciting as the Internet," says Chris Godding. Companies need to manage their customer databases, he says, using the information as a marketing tool.

Whitechurch Securities: 0117 9442266

Killik & Co: 0171-761 4400

SocGen Technology Unit Trust: 0808 100 254368

Sport
Club legend Paul Scholes is scared United could disappear into 'the wilderness'
football
News
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
science
News
Dawkins: 'There’s a very interesting reason why a prince could not turn into a frog – it's statistically too improbable'
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
Life and Style
ebooksFrom the lifespan of a slug to the distance to the Sun: answers to 500 questions from readers
Travel
Dinosaurs Unleashed at the Eden Project
travel
Arts and Entertainment
music
Sport
football
Life and Style
This month marks the 20th anniversary of the first online sale
techDespite a host of other online auction sites and fierce competition from Amazon, eBay is still the most popular e-commerce site in the UK
News
i100
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

    £45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

    Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

    Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

    C# .NET Software Developer (Client-Side, SQL, VB6, WinForms)

    Negotiable: Harrington Starr: C# .NET Software Developer (Client-Side, SQL, VB...

    C# Developer (Genetic Algorithms, .NET 4.5, TDD, SQL, AI)

    £40000 - £60000 per annum + Benefits + Bonus: Harrington Starr: C# Developer (...

    Day In a Page

    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
    eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

    eBay's enduring appeal

    The online auction site is still the UK's most popular e-commerce site
    Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

    'Lack of ethnic minority and black faces on TV is weird'

    Culture Minister Ed Vaizey calls for immediate action to address the problem
    Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

    Magic circles: Artist Olafur Eliasson

    Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
    Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

    Josephine Dickinson: 'How I discovered a new world of sound'

    After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
    Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

    Greggs gives lesson in crisis management

    After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
    Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

    Matthew McConaughey sings the praises of bumbags

    Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
    7 best quadcopters and drones

    Flying fun: 7 best quadcopters and drones

    From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
    Andy Murray: I quit while I’m ahead too often

    Andy Murray: I quit while I’m ahead too often

    British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
    Ferguson: In the heartlands of America, a descent into madness

    A descent into madness in America's heartlands

    David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
    BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

    BBC faces corruption allegation over its Sir Cliff police raid coverage

    Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home