Chips with everything

Many investors are still afraid of new-tech stocks. They are missing out, writes Mark Dampier

Technology's impact is difficult to ignore. Take mobile phones. In the mid-1980s they weighed as much as your shopping bag and cost more than pounds 2,000. Ten years later they slip into your pocket and are virtually given away.

The technology sector includes software companies, telecoms equipment, PC hardware and, of course, the internet. If one sector goes off the boil, as software services have done, another can take the lead as we have seen with net stocks.

The impact of technology on business has been consistently underestimated and in the main it is highly deflationary. Much newsprint has been expended on the Abbey National bank's intention to charge clients pounds 5 for paying bills at branches. But take figures from America: a single transaction through a branch costs $1.07 (about 66p), through PC banking 2 cents, and using the net cuts it to 1 cent. No wonder that banks wish to push their clients down this route.

Another deflationary area is document transfers. Take the example of a 42-page document going from New York to Tokyo: an overnight package would take 24 hours and cost $26.25 and a fax would take 31 minutes and cost $28.23. The net would cost 95 cents and take two minutes.

Even old industries such as energy can benefit from advances made in technology. Shell's operating costs of pounds 2.50 a barrel are three times lower than those projected 10 years ago. Given these advances and the cost savings, is it any wonder that developed economies are seeing so little in the way of inflation?

Much has been made of the latest investment fashion - the internet. The ability to buy services over the net will alter shopping for ever. The data being built up by net providers will allow them to target specific items of interest, be it hobbies, sports or books.

The huge valuations placed on internet companies have been a big talking point. Some of the scepticism is valid. Like any revolution, there will be failures along the way.

The fact that many appear not to make a profit has also been a concern. How can you value a company that is not making any profit?

But the truth is that many of these companies are beginning to make profits and every last penny is being reinvested. If it wasn't, the companies would die. These companies are nothing if they have not got the latest technology to keep tabs on every available piece of information. If you control the information flow, you have market power.

The companies are not handicapped by high starting costs, however. Most internet companies have a low cost capital base. The money is spent on sales and marketing, not on a giant steelworks or chemical refinery. It means, therefore, that only a tiny upswing in demand can create massive profits.

With so many winners and losers, how can investors sort the wheat from the chaff, or the Sinclair C5s from the Microsoft Windows of the world? From a practical point of view it must be through a pooled investment vehicle - either a unit or investment trust that will offer diversification and professional management.

Aberdeen Technology unit trust has been around since 1982 and to my knowledge was the first technology unit trust to be set up. It has developed a tremendous track record, turning pounds 1,000 at launch to pounds 28,561 today. A monthly savings plan could be an ideal method of building up funds in this sector and volatility can work for you, averaging the cost of purchase.

There are other choices. Most recently Framlington's NetNet fund, which is slightly more specialised, buying internet companies and companies that will benefit from it. With internet traffic doubling every 100 days and internet commerce expected to reach pounds 300bn by 2002, it is hard to ignore.

Technology funds can also be accessed through investment trusts. Probably the best is Henderson Technology, which, despite the enormous gains, still trades on an 8 per cent discount.

The sector often goes through a summer lull but comes back strongly in the autumn when the trade fairs start in the United States. This year we may see more volatility because of the uncertainty over the millennium bug, so this may be a buying opportunity.

Why has this area been neglected by most retail investors? After all, Aberdeen's fund after 17 years is still only pounds 175m in size. Probably because many of us do not understand technology and perhaps even feel frightened by it, coupled with the fact that we think it is high-risk. However, I believe we are confusing short-term volatility with losing money. There can indeed be some large swings in the short term in this sector, but over periods of five years or more excellent returns have been made.

This is no longer a fringe area but an extremely important mainstream sector. It is time to take our heads out of the sand and grasp the opportunities ahead of us.

n Mark Dampier is an investment manager of Bristol-based brokers and investment managers Hargreaves Lansdown (0117-988 9880).

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
Arts and Entertainment
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
ebooksAn unforgettable anthology of contemporary reportage
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
News
i100
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.

iJobs Job Widget
iJobs Money & Business

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

SQL DBA/Developer

£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

Day In a Page

'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
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering