Global Markets: Technology - Turning dreams of the future into solid success

Ken Welsby finds out why a hi-tech fund tops the international league

Investors have learned the hard way to be wary of technology stocks, so it could be something of a shock to discover that one of the top-performing international funds is Prolific's Technology unit trust.

The fund tops the Micropal league table for international equity growth funds over five years; pounds 100 invested in May 1992 would now be worth pounds 315, compared with a sector average of just pounds 180. Alan Torry, the fund manager, makes the point that technology is "the productivity driver of economic growth" - particularly in the US.

"A great many UK investors are staggered by the continuing success of the US economy; they don't realise that technology accounts for a much larger percentage of the economy and the take-up is much faster than it is over here," he says. "Almost half of the economic growth in the US is accounted for by technology."

Although hi-tech industries are inevitably cyclical, the effects are not so extreme as in more traditional "boom to bust" capital goods markets, where the flow of orders can dry up rapidly.

"Although there are slowdowns, companies don't shy away completely from investing in technology when business slows down," Mr Torry says. "There are a number of reasons for this. First because the payback can often be measured in months, rather than years, and second, because the investment can often be essential to maintain a competitive position in the market."

In the software and systems markets he notes that a number of companies have offered good products but have been let down by their sales and distribution channels - and this has been reflected in their share price.

Business customers, he says, are increasingly focusing on companies which offer strong support and consultancy - he highlights both Oracle and Baan of the Netherlands in this context - rather than those which push "best of breed" technology.

Another point in favour of technology is the rapid growth of sectors such as telecommunications, particularly in emerging markets which need to invest heavily in their infrastructure. Telecoms and software are the two dominant sectors in which the Prolific fund invests, followed by computer equipment and the semiconductor industry.

Inevitably, as a technology fund, most of its assets are in the US and Japan, but there are also significant stakes in Canadian, Dutch and UK companies. The investment process is based on lots of research and analysis to identify the prospects for various industrial sectors, which then leads naturally to the identification of individual companies.

Some of the assets are big names such as Intel, Compaq, Motorola and the electronics giant Matsushita - best-known in Britain for its Panasonic brand.

Others, however, are little-known outside their respective industries, such as Ballard Power, which is developing fuel cell technology that could one day replace the internal combustion engine for certain applications.

That sounds more like the kind of investment beloved of venture capital entrepreneurs in California rather than unit trust managers in London. But there's at least one indicator that Ballard is no dream factory: Daimler- Benz, which has a reputation for being conservative with its capital, has invested about $400m in the business.