Hi-tech on the high wire

The fall in the technology sector has hit investment trusts especially hard

The recent freefall in technology stocks is particularly bad news for those with investment trusts. Unlike technology unit trusts, which are priced at the true cost of their underlying assets, technology investment trusts have dual pricing, which means their shares collectively can be worth substantially less or more than the real value of the assets held.

The recent freefall in technology stocks is particularly bad news for those with investment trusts. Unlike technology unit trusts, which are priced at the true cost of their underlying assets, technology investment trusts have dual pricing, which means their shares collectively can be worth substantially less or more than the real value of the assets held.

At the moment, investment trusts are trading at big premiums; the shares are worth more than the assets in the trust and are significantly overvalued. So even though technology unit trusts have also taken a battering in recent weeks, their single pricing - unlike the dual pricing of investment trusts - reflects the true value of the underlying assets.

Investment trusts have grown in popularity in recent years, partly as a result of the Association of Unit Trust (AITC)'s "Its" advertising campaign. They enable investors to purchase a range of shares across a spread of companies through a single vehicle. Investment trusts are quoted on the stock exchange and their shares are traded like those of any other company - but their business is investing in other firms.

They have certainly caught on: sales of individual savings accounts (ISAs) operated by investment trusts and their managers have grown substantially. According to the AITC, sales rose by 71 per cent in the third quarter of this year, compared with the same period in 1999, amounting to nearly £25m.

But even though their popularity is growing, investment trusts remain complicated, particularly for first-time investors. Some are structured in such a way that even experienced investors have trouble understanding them. And these structures are not always successful. Aberdeen Asset Managers was recently bailed out by UBS Warburg because its European Technology and Income Trust is so highly geared that the dip in technology stocks resulted in severe losses which had to be covered. Retail investors weren't affected, as this trust is targeted at institutional investors. But it does underline the importance of finding out exactly what you are investing in and making sure you understand it.

"The Aberdeen [case] was a bit of an exception," says Tim Cockerill, investment manager at independent financial adviser (IFA) Chartwell Invest- ment. "But the investment trust technology sector is a bit horrible at the moment."

Henderson Technology Investment Trust illustrates this, currently trading at £3.23 a share, down from a high of £5.76 earlier this year, a fall of 44 per cent. Yet despite this dramatic fall, it is trading at a premium of 18 per cent - so clearly it's overvalued.

"Technology is [still] a good investment, with new ideas and products being produced every day," says Mr Cockerill. "But I can't see why anyone would hold something which is 18 per cent overvalued."

Henderson Technology Investment Trust is not alone. Amerindo Technology is trading at a 12 per cent premium and Finsbury Technology at 10 per cent. But not all investment trusts are in this position; Flemings is trading at a small discount, as is Invesco. With the majority trading at high premiums, however, many financial advisers are telling investors to steer clear of technology investment trusts for now.

But if you already possess an investment trust, don't be too quick to sell it, advises Mark Dampier, head of research at IFA Hargreaves Lansdown. "My view is that once they rise to premiums of 15 per cent, only then should you think about selling," he says. "There is a tremendous buying opportunity coming up elsewhere in the tech sector. Shares are down in good companies, too, so there are going to be some great opportunities out there."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
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 Money & Business

    SThree: Graduate Recruitment Resourcer

    £20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

    Recruitment Genius: Telesales Executive - OTE £32,000+

    £18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

    Ashdown Group: Marketing Manager - B2B, Corporate - City, London

    £45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Neil Pavier: Commercial Analyst

    £50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

    Day In a Page

    General Election 2015: The masterminds behind the scenes

    The masterminds behind the election

    How do you get your party leader to embrace a message and then stick to it? By employing these people
    Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

    Machine Gun America

    The amusement park where teenagers go to shoot a huge range of automatic weapons
    The ethics of pet food: Why are we are so selective in how we show animals our love?

    The ethics of pet food

    Why are we are so selective in how we show animals our love?
    How Tansy Davies turned 9/11 into her opera 'Between Worlds'

    How a composer turned 9/11 into her opera 'Between Worlds'

    Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
    11 best bedside tables

    11 best bedside tables

    It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
    Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

    Italy vs England player ratings

    Did Townsend's goal see him beat Kane and Rooney to top marks?
    Danny Higginbotham: An underdog's tale of making the most of it

    An underdog's tale of making the most of it

    Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
    Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

    Steve Bunce: Inside Boxing

    Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat