Technology craze or investment opportunity
Following a 100 per cent rise in Nintendo's share price, BT Investment Management's head of global equities, Ashley Pittard, looks at whether the tech craze is an investment opportunity or if it's just hype.
Pittard said technology companies were "very attractive" as they had large market shares, stable businesses and strong earnings before interest and tax (EBIT).
Pittard found their EBIT margins were very high (around 35 per cent) compared to other businesses which were lower, plus they had attractive returns on capital, and were showing strong upside as their businesses transitioned to cloud-based models.
On that basis, technology made a substantial part of BT's concentrated global fund, for which Pittard acted as the portfolio manager.
‘The big five tech companies (Google, Apple, Cisco, Oracle, and Microsoft) had about $500 billion of cash on their balance sheets in total, which was about 15 per cent of their market caps. But, that wasn't being considered by short term investors, he said.
He found that the market significantly under-valued those companies, but their earnings growth would accelerate over the next three to five years as they moved to the cloud.
Microsoft already showed great success, as their 365 cloud product business (where you paid a subscription of around $100 per year for Word, Excel and PowerPoint etc. instead of buying a legacy CD) had grown by 59 per cent year-on-year-on, while their commercial cloud business itself, grew by 51 per year, Pittard said.
Only three managed funds in Australia concentrated on technology alone, based on Money Management's Investment Centre (MMIC) and Financial Express' data.
BT's technology fund produced the best annual result with a 9.86 per cent this year, followed by Colonial First State's global technology and communications fund (with 4.31 per cent), and Fiducian's technology fund (with 0.93 per cent).
[insert table: tech funds short term]
Over the long term (10 years), BT's technology fund still led, with 9.56 per cent per annum, while Fiducian's technology fund jumped up to second (with 9.47 per cent per annum).
[insert table: tech funds long term]
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