Robert Morgan: Tech stocks expert is adept at spotting winners - and losers
Saturday 20 October 2012
As you might have seen in the business pages, Google briefly became a more valuable company than Microsoft for the first time. It is a tale of contrasting fortunes. Microsoft enjoyed huge success in the Nineties as households adopted desktop PCs using its software and operating system, Windows. Yet these once ubiquitous programs now seem more expensive in the face of lower-cost and convenient "mobile computing". Compared to rivals such as Apple and Google, Microsoft has failed to harness this new wave of technology.
The growth of mobile connectivity has been much faster than desktop internet. Google has been able to exploit this through its Android operating system, which is used in a wide variety of mobile phones and tablet computers. It has now established itself as Apple's main rival. Microsoft, however, has struggled to build a significant user-base for its mobile products – despite continued success in its traditional (though far more mature) business of desktop PCs and servers for businesses.
These contrasting fortunes illustrate how the evolution of technology constantly produces winners and losers. Google was only founded in 1998, and Apple's share price is around 80 times that of 10 years ago, such has been its growth. Clearly, the winners can be spectacular, so when investing in this sector, it is worth putting the effort into keeping on top of developments.
Jeremy Gleeson, manager of the AXA Framlington Global Technology Fund, is constantly assessing where the next opportunities lie and, just as importantly, identifying the casualties of dying sectors.
As he puts it, it sometimes takes a "near death" experience for companies to make the tough choices to genuinely reinvent themselves. In the meantime there can be several "false dawns" as a company chases after new opportunities but fails to radically change its business.
Interestingly, Apple went through such a period in the 1990s, and eventually hit upon a winning formula with its portable MP3 player, the iPod, in 2001. At the same time the iTunes internet store was launched and quickly became the market leader in online music services. It was an innovation that spawned the widespread success of the more complex mobile devices that dominate the market today, such as the iPhone and iPad.
Such is Apple's size today that it represents nearly 20 per cent of the technology index. So although it is the fund's top holding at around 8 per cent, Jeremy Gleeson is still "underweight" the stock. His rivals are in a similar position, however, as individual stock weightings for all funds cannot exceed 10 per cent. In any case, he prefers to invest in companies such as Dialog Semiconductor and ARM holdings, which supply essential components to Apple. This diversifies risk to a degree and could be a more profitable way to capitalise on its domination. Being smaller, they may have the opportunity to expand their earnings more quickly.
Around half the fund is invested in smaller and medium-sized companies, and following a series of takeovers of portfolio holdings in the area last year, Jeremy Gleeson has invested in a new wave of fast-growing software firms such as Eloqua and ExactTarget. However, he avoids firms that aren't profitable or have unproven management teams. Interestingly, he puts Facebook in this category, as he doesn't have enough conviction that it can deliver on its plans. He also avoids business models that appear to be disrupted or in decline. As such he doesn't hold Microsoft, Intel or IBM, which are reliant on desktop PC sales, as well as Nokia, whose prospects outside its more traditional mobile phone handsets are looking increasingly limited.
Nowhere is corporate Darwinism more obvious than in the technology sector. Yet the long-term rewards are huge for the right companies. Valuation is also important, and this is where an adept fund manager comes in. There is no point in identifying exciting opportunities but paying the wrong price. I believe Jeremy Gleeson has the necessary experience and discipline to capitalise. The fund has a good record since he took over in July 2007, up 71 per cent versus 50 per cent for the sector, though holdings in more volatile smaller companies means it should be considered higher risk.
Robert Morgan is an investment analyst at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
- 1 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 2 Russian officials ban yoga because it's too much like a religious cult
- 3 German ethics council calls for incest between siblings to be legalised by Government
- 4 Ginger Pride festival to take place next summer, organisers say 'time of bullying gingers is over'
- 5 Facebook rainbow profile pictures likely being tracked by social network
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Pentagon accuses Russia of 'playing with fire' over nuclear threats towards Nato
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
iJobs Money & Business
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Negotiable: Recruitment Genius: This extremely successful and well-established...
Day In a Page
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.