Mark Hawtin, fund manager of the GAM Star Technology Fund has recently returned from a regular visit to the Silicon Valley and Seattle. Her he provides an update on finding value in the Technology sector…
Our core investment themes are cloud, mobility, social networking, video and mobile payments. I believe mobility is currently the most attractive because of the huge opportunity presented by an installed base of 4 billion users, over four times the size of the PC installed base.
Everyone identifies that mobility will drive the adoption of video, social networking and mobile payments. These are the services that sit on top of the mobile (and fixed) devices that are in turn enabled by the internet (cloud). Without exception, the trend to greater mobility is seen as driving the biggest opportunity in technology, perhaps that we have ever seen. Without exception, companies expect at least 80% of mobile devices to be 'smart' and that there will ultimately be more of these devices than people on the planet.
Throughout the internet era there has been no better time to invest, a view heavily endorsed by reasonable valuations in most parts of the technology chain. The NASDAQ 100 is trading at the cheapest level seen for many years: 13x 2012 and 11.3x 2013. Huge medium to long term growth potential exists in the digital economy, a sector that should generate alpha in a very difficult equity market.
As the world focuses on Facebook’s first few weeks of trading, alternative investment opportunities deserve investors’ attention. In the gold rush it was better to buy the manufacturers of picks and shovels than the gold prospectors - in the internet world we favour the infrastructure and service providers than social networks themselves. Notwithstanding rare exceptions like Apple, everything in technology is focused on user experience, and that tends to be driven by software innovation.
Technology giants such as Google and Microsoft also present interesting investment opportunities in the current market. Microsoft has significant tailwinds from the launch of Windows 8 that should ensure strong revenue growth. At the same time, the Ultra book initiative will be a worthy challenger to the iPad or Macbook Air. Google continues to innovate and dominate the online advertising world and is still best placed to capitalise on mobile advertising.
Other opportunities include eBay and Adobe. eBay has completely reinvented itself with over 70% of the marketplace business now coming from the sale of new goods rather than auctioned items. Adobe is launching new products and targeting increased subscriptions. At the same time they have the best HTML5 publishing product on the market to transition them away from Flash for all but the highest end video usage.
The GAM Star Technology Fund is up +11.8% since inception (21/02/2011 – 23/05/2012, GBP share class) compared to a return of +1.6 % for the MSCI World Information Technology Index.