Warrants offer a way into high-tech stocks

FRENZIED RETAIL investors are still piling into technology stocks, climbing onto the investment bandwagon while it keeps rolling, despite a rising number of market pundits who have been warning that the whole sector is looking extremely high risk and over-valued. And for those participants in the race for technology stock winnings who feel they really understand the risks, there is an even more exciting alternative. Why not go the whole hog with a geared technology investment?

Gearing means increasing one's exposure to a certain investment for the same outlay. Warrants are a type of geared investment, and warrants in the technology sector have made staggering gains in the last three months. Over that period, the warrants of e-capital investments, a company which invests in the sector, have risen by 2,400 per cent. And warrants in another technology investment company, eVestment, have climbed 1,600 per cent, according to the specialist investment newsletter Warrants Alert.

Issued by companies, warrants are certificates which entitle the holder to buy a specific number of its shares at a certain price, the exercise price, sometime in the future. Nowadays, warrants often start life as sweeteners issued by investment trusts when they make a new issue of shares.

Once these warrants have become detached from the shares they were issued with, they are traded on the open market, just as shares are. But because they cost only a fraction of the price of the share itself, investors can, for the same outlay, potentially benefit from the growth of a much larger shareholding.

Of course, if the share price fails to reach the exercise price of the warrant, then these securities become worthless, and the investor has lost the entire stake.

Warrants are purchased through a stockbroker or financial adviser. The cost is the same as dealing in shares; when you come to exercise the warrant there is no fee to pay. "They are not investments for widows or orphans, but there's no reason why as long as income is not a major consideration, warrants cannot be used as part of an investment portfolio," says Andy Cochrane, convertibles and fixed interest analyst at stockbrokers Greig Middleton.

One advantage of warrants is that while not all of your money is being used to buy the shares you have gained exposure to, that money can be put to use elsewhere.

If you forget about a warrant you own, and it only comes to light after the expiry date, it is worthless. Make sure both you and your stockbroker know which of you is responsible for monitoring the security.

"You do get people exercising warrants when they are out-of-the-money," says Simon Gaunt of stockbrokers Tether & Greenwood. A warrant is "in- the-money" when the exercise price is lower than the actual share price, and "out-of-the-money" when it is higher. Anyone using an out-of-the-money warrant to buy shares would be buying shares for more than they were worth.

How do you choose a warrant? You need to know what level of gearing it offers at its current price and what premium it is trading at. In the technology sector, Warrants Alert highlights as undervalued the warrants of eVestment Company, Foresight Technology VCT, Herald Investment Trust, NetVest.com and VirtualInternet.net.

But as with shares, forming an opinion about the prospects of a company itself is important too.

Tim Cockerill, an independent financial adviser at Whitechurch Securities in Bristol, recommends Henderson Technology warrants. Although the warrants have already risen 543.2 per cent over the last 12 months, they still have a long life, expiring in September 2005. And the investment trust itself does not look expensive, trading at a premium-to-net asset value of just 2 per cent, says Mr Cockerill.

But, overall, given this year's extraordinary surge in warrants in the technology sector, are they still worth buying? Andrew McHattie, the publisher of Warrants Alert, doubts it, although he says it may still be worth watching out for new ones coming to the market.

For those reluctant to buy individual warrants, there are a few collective investments which hold warrants. These include the Warrants & Value Investment Trust, Hargreaves Lansdown's Warrant Portfolio Trust and the McHattie Warrants Alert Fund which was launched by the newsletter publishers in October and is already up 16.5 per cent.

Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites those Star Wars rumours
News
Russell Brand has written a book of political analysis called Revolution
peopleFilm star says he is 'not interested in making money anymore'
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
News
people

Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'

PROMOTED VIDEO
Arts and Entertainment
JK Rowling is releasing a new Harry Potter story about Dolores Umbridge
booksChristmas comes early for wizard fans
News
news

Emergency call 'started off dumb, but got pretty serious'

News
news
Arts and Entertainment
On The Apprentice, “serious” left the room many moons ago and yet still we watch
tv

Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent

Voices
Hunted: A stag lies dead on Jura, where David Cameron holidays and has himself stalked deer
voicesThe Scotland I know is becoming a playground for the rich
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
filmsOculus Rift offers breathtakingly realistic simulation of zero gravity
Sport
footballAccording to revelations from Sergio Aguero's new biography
Life and Style
tech

News
people'When I see people who look totally different, it brings me back to that time in my life'
Arts and Entertainment
A scene from David Ayer's 'Fury'
film

"History is violent," says the US Army tank commander Don "Wardaddy" Collier

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

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker