Up, up, but where next?

The experts can't agree on hi-tech stocks, but there are ways for investors to take an educated gamble

These are confusing times for investors in hi-tech stocks. Driven by the sky-high valuations of some internet start-ups and new technology companies, inves-tors have been piling into the sector only to be warned by the City regulator, the Financial Services Authority, that they should be more cautious.

Yet last week, Eddie George, Governor of the Bank of England, contradicted this by appearing to endorse the high values of these stocks: "... the particular strengths of high technology stocks in equity markets provide a better underpinning of equity values than perhaps has been appreciated," he said.

If those who should know what they are talking about cannot agree, where does this leave the average investor?

Mouth-watering growth in the share price of companies such as bookseller Amazon.com or internet search engine Yahoo! has left many investors keen for a slice of the profits. Internet company NewMedia Spark is less well known, but since it floated on the Alternative Investment Market in October at 42p a share, the price has doubled to more than pounds 1. NewMedia Spark is now valued at pounds 110m even though its assets are little more than a small stake in another publicly quoted company - Digital Animation - and a pounds 4m cash pile.

Such stories are commonplace. Shares in many small hi-tech companies are trading at 20 times net asset value as investors bet that at least one of these turns into an Amazon.com.

But the risks are high: the FSA has warned that "dotcoms" can be difficult to trade. There is also the fear that shares are ridiculously overvalued.

For those who want to invest but would also like to sleep at night, a slightly safer way to invest is through a fund run by an experienced fund manager. Jason Hollands, deputy managing director at independent financial adviser BEST Investment, recommends the Henderson Global Technology fund and the Aberdeen Technology fund. Both invest in telecoms, the internet and computers.

Mr Hollands also recommends the Framlington NetNet fund. Launched in May, it is the only fund in the UK that invests solely in internet stocks, or companies that use the internet to boost sales, such as the clothing retailer Gap.

However, if you want to go it alone and have spare money to invest, there are many options.

Stocks to watch include:

Cambury Investments, a shell company taken over by a group of investors led by Hugh Osmond, chief executive of Punch Taverns. It includes a stake in recently floated Redstone Investments and eVestment, another internet investment fund, among its holdings.

n eVestment has also been making solid progress investing in new ventures including iDefense, a company that develops software aimed at protecting internet servers from hacker-inspired cyber attacks.

n Investment company StartIT, valued at pounds 4m, has a more unusual strategy. Backed by managers involved with the hugely successful Torch Telecom group, it invests in start-ups. Such a high-risk strategy has the potential to deliver huge returns but venture capitalists estimate that at least three- quarters of all start-ups fail to get any kind of public listing or are subject to takeover bids.

n The Multimedia Corporation used to be an ailing software house but has been transformed under new management.

n Venture capitalist Shore Capital has a good record in backing hi-tech start-ups. Its Puma 1 fund backed BATM, an Israeli telecoms equipment maker which has rocketed in value.

n London Pacific is an old- fashioned insurance business whose venture capital arm, Berkeley International, invests in internet companies such as Ramp and Net Perceptions. It has a market value of pounds 267m, a healthy dividend stream, a growing annuity and life business, and a slew of new venture capital investments ahead.

Whether you choose to buy shares in hi-tech companies directly, or go through a fund manager, you should be prepared for a bumpy ride. "Technology funds have had a phenomenal year," says Mr Hollands. "But we are very concerned that people don't understand the risks. Investors must be committed for the long term and be prepared to see a lot of fluctuations in returns."

n For a free copy of the BEST Investment PEP & ISA magazine, which has a feature on investing in technology, phone 0990 112255 or visit www.bestinvest.co.uk

Start your day with The Independent, sign up for daily news emails
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: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Beverley James: Accounts Payable

£22,000 - £23,000: Beverley James: Are you looking for the opportunity to work...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower