Heading for a dotcom bubble MkII? Not on our watch . . .
THIS Saturday is the 17th anniversary of the bursting of the dotcom bubble, the stock market correction that saw share values plummet – triggering the collapse of a host of internetbased companies.
For hundreds of thousands of UK investors who had been persuaded to buy technologyfocused funds by top investment houses’ powerful marketing campaigns, the savaging of their portfolios proved financially catastrophic.
Last week’s successful flotation of mobile phone app Snapchat – a company that has never made a profit – has been seen by some experts as an indication of dotcom bubble ‘Mark II’.
Yet some fund managers believe the case for holding technology stocks remains robust. They argue that the internet has transformed the way we shop and do business, turning the likes of Google owner Alphabet and Microsoft into some of the world’s biggest firms by value.
One fund investing in internet-focused companies is Pictet Digital. With £685million in assets, it is managed from Pictet Asset Management’s Geneva base by Sylvie Sejournet and Nolan Hoffmeyer.
Its record is impeccable. Over the past five years, it has returned 155 per cent, which compares well with the average for tech and telecoms funds (107 per cent) and the FTSE All-Share Index (57 per cent).
The 49-stock fund predictably holds most of the big listed tech firms, such as Alphabet, Amazon, Apple, Facebook, Microsoft and Twitter. But it is not just a holder of leading technology brands. Among its portfolio are a number of unfamiliar firms, such as Medidata Solutions, a leader in helping pharmaceutical groups facilitate the clinical testing of drugs. Zendesk, a Californian supplier of customer service software, is another key holding.
Hoffmeyer says the fund has about 400 firms worldwide to choose from, though most are based in America. Stocks are eligible for inclusion only if they pass a ‘purity’ ratio. In simple terms, more than 20 per cent of revenue must be derived online.
Once stocks overcome this hurdle, the managers apply quantitative and qualitative tests to see if it is fit to include in the fund. Quantitative analysis includes looking at how pure its revenues are (the more onlinecentric it is, the higher score it gets), how quickly shares can be sold and the share price volatility. Qualitative work embraces the strength of the business franchise and the credibility of the management.
Each company in the portfolio is scored weekly and if it drops, it is in danger of being sold.
The fund has an advisory board of three independent experts who help to identify emerging digital trends. One is Antoine Blondeau, co-founder of artificial intelligence specialist Sentient.
With most technology firms priced at a premium, some observers reckon we could be heading for another 2000.
But Hoffmeyer says: ‘Digital companies are increasingly in a position to generate stronger revenues. Of course, we constantly look at valuations – they are important to our screening process. But we are nowhere near another 2000.’