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

Arts and Entertainment
Joe Cocker performing on the Stravinski hall stage during the Montreux Jazz Festival, in Montreux, Switzerland in 2002
musicHe 'turned my song into an anthem', says former Beatle
News
Clarke Carlisle
sport
Sport
footballStoke City vs Chelsea match report
Arts and Entertainment
David Hasselhof in Peter Pan
theatreThe US stars who've taken to UK panto, from Hasselhoff to Hall
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
News
newsIt was due to be auctioned off for charity
News
Coca-Cola has become one of the largest companies in the world to push staff towards switching off their voicemails, in a move intended to streamline operations and boost productivity
peopleCoca-Cola staff urged to switch it off to boost productivity
Environment
Sir David Attenborough
environment... as well as a plant and a spider
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
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

    Austen Lloyd: Regulatory / Compliance / Exeter

    Excellent Salary: Austen Lloyd: Exeter - An excellent opportunity for a Solici...

    Ashdown Group: IT Support Technician - 12 Month Fixed Term - Shrewsbury

    £17000 - £20000 per annum: Ashdown Group: IT Helpdesk Support Technician - 12 ...

    The Jenrick Group: Maintenance Planner

    £28000 - £32000 per annum + pension + holidays: The Jenrick Group: Maintenance...

    The Jenrick Group: World Wide PLC Service Engineer

    £30000 - £38000 per annum + pesion + holidays: The Jenrick Group: World Wide S...

    Day In a Page

    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'