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).

Start your day with The Independent, sign up for daily news emails
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
ebooksA special investigation by Andy McSmith
  • 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.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

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
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor