Technology stocks: Time to party like it's 1999?

It all went terribly wrong last time, but technology stocks are soaring again. Emma Dunkley has some words of caution

Technology investment is back with a bang. Facebook's float is just the latest in what is a lengthening line of exciting companies coming to market at what seem huge valuations. Investors, it seems, are being asked to party like it's 1999 all over again, back when everything technology glittered.

But could this just be another bubble, a case of history repeating itself? "If anyone tells you it is different this time, run a mile," says Gavin Haynes at the investment specialists Whitechurch Securities. "There will be winners and losers in the new technological revolution, which is being driven by social media and cloud computing."

But funds in the sector have in the main a terrible record over the long term. "The problems for tech specific funds are identifying the businesses and the technology that will succeed and then ensuring that they don't over-pay," says Peter Fitzgerald at Aviva Investors.

Tech funds have never really recovered from the disaster at the start of the millennium, says Mr Fitzgerald. "The capital loss was simply too great following the tech bust. Investors who put their money in at the end of December 1999 will still be showing large losses, in some cases up to 70 per cent."

There are still major issues dogging the tech sector that should make you wary. "Technology is such a fast-changing environment there is scope for business models to become obsolete," says Rob Morgan at Hargreaves Lansdown. "Apple's tablets and other mobile devices cannibalising the sales of desktop PCs and laptops is one example. Nokia's rise and fall is also a good example of a global leader losing its way."

And warning signs that there may be danger ahead include hype and over-priced stocks. "Certainly we have seen recent floats suffer," says Adrian Lowcock at Bestinvest. "Groupon is an example. Although Facebook will likely break many records at float, for most retail investors I would stick to a more diversified approach."

If you don't want to go down the tech-focused fund route, there are other ways you can access this theme, depending on how much risk you want to take with your money. "You could go to one extreme and decide to hold a handful of tech companies like Apple, Microsoft and Google," says Darius McDermott at Chelsea Financial Services.

Although this means you have spread your money less and so are taking more risk, you could potentially see higher returns. "You could also go for an exchange-trade fund (ETF), which tracks a particular index, for example the Nasdaq," says Mr McDermott.

If you want to play it safer and spread your money, then you could consider a US equity fund. "The US is still the home for many tech companies, particularly their intellectual capital, so the choice is good," says Mr McDermott. "The AXA Framlington American fund, for example, has a third of its investments in the technology sector at the moment."

But there is another good reason to look at US funds and the tech sector, in terms of dividend pay-outs, especially at a time when the UK is disappointing on this front. "Historically, dividends have been seen as a bad thing for US tech, as it was believed a company paying them was admitting it could no longer grow," says Mr McDermott. "But that attitude is changing, particularly with Apple announcing recently it would pay a dividend."

But dividends are still at low levels. Of the 71 large US tech companies, 37 pay a dividend of, on average, 1.07 per cent, says Mr McDermott. Apple, for example, offers around 1.8 per cent and Microsoft is nearer 2.4 per cent.

But technology stocks could very well be the new income sector of choice, says Brian Dennehy at Dennehy Weller. More tech firms are paying out dividends than at any time since January 2000, with six companies initiating pay-outs this year. He says technology stocks' dividends are also expected to increase by as much as 48 per cent this year, and tech funds could be paying out more dividends than any other type of fund by 2013.

"This has not passed income fund managers by," says Mr Dennehy. For example, the JPM Global Equity Income fund now holds approximately 9 per cent of assets in technology, because of the potential for strong future dividend growth. "So the message is that the technology sector is certainly one to watch," he adds.

So even if the crashed funds of the tech crisis have left scars, the new revolution is providing some opportunities as well as the chance to build your income. But don't necessarily rush to the latest fad, because tomorrow's iPad could soon be yesterday's PC.

Emma Dunkley is a reporter at citywire.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
News
i100
News
people Emma Watson addresses celebrity nude photo leak
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
News
peopleHis band Survivor was due to resume touring this month
PROMOTED VIDEO
Arts and Entertainment
Robert De Niro, Martin Scorsese and DiCaprio, at an awards show in 2010
filmsAll just to promote a new casino
News
i100
News
In this photo illustration a school student eats a hamburger as part of his lunch which was brought from a fast food shop near his school, on October 5, 2005 in London, England. The British government has announced plans to remove junk food from school lunches. From September 2006, food that is high in fat, sugar or salt will be banned from meals and removed from vending machines in schools across England. The move comes in response to a campaign by celebrity TV chef Jamie Oliver to improve school meals.
science
News
people'It can last and it's terrifying'
Arts and Entertainment
tv
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
News
i100
Sport
Tom Cleverley
footballLoan move comes 17 hours after close of transfer window
Sport
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
footballRadamel Falcao and Diego Costa head record £835m influx
Life and Style
fashionAngelina Jolie's wedding dressed revealed
News
Boris Johnson may be manoeuvring to succeed David Cameron
i100
Finacial products from our partners
Property search
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

    Java/Calypso Developer

    £700 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, J2EE, J...

    SQL Developer

    £500 per day: Harrington Starr: SQL Developer SQL, C#, Stored Procedures, MDX...

    C#.NET Developer

    £500 per day: Harrington Starr: C#.NET Developer C#, WPF, WCF, ASP.NET, Prism...

    Web Developer/UI Developer (HTML5, CSS3,Jquery) London

    £55000 - £65000 per annum: Harrington Starr: A Global Financial Service Organi...

    Day In a Page

    Stolen youth: Younger blood can reverse many of the effects of ageing

    Stolen youth

    Younger blood can reverse many of the effects of ageing
    Bob Willoughby: Hollywood's first behind the scenes photographer

    Bob Willoughby: The reel deal

    He was the photographer who brought documentary photojournalism to Hollywood, changing the way film stars would be portrayed for ever
    Angelina Jolie's wedding dress: made by Versace, designed by her children

    Made by Versace, designed by her children

    Angelina Jolie's wedding dressed revealed
    Anyone for pulled chicken?

    Pulling chicks

    Pulled pork has gone from being a US barbecue secret to a regular on supermarket shelves. Now KFC is trying to tempt us with a chicken version
    'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

    'I’ll tell you what I would not serve - lamb and potatoes'

    US ambassador hits out at stodgy British food
    Radio Times female powerlist: A 'revolution' in TV gender roles

    A 'revolution' in TV gender roles

    Inside the Radio Times female powerlist
    Endgame: James Frey's literary treasure hunt

    James Frey's literary treasure hunt

    Riddling trilogy could net you $3m
    Fitbit: Because the tingle feels so good

    Fitbit: Because the tingle feels so good

    What David Sedaris learnt about the world from his fitness tracker
    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Second-holiest site in Islam attracts millions of pilgrims each year
    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband