“The trouble is the speed of technological evolution is so fast investors struggle to match it with the investment opportunity,” he says. “Technology is often difficult to separate from the rest of the business, which means the opportunity is not always clear cut.”
AI, for example, is a hot topic and the theme on which some funds are solely focusing. For Lowcock, the main question is whether the investment opportunity lies within the AI company itself or those businesses that are using AI tools successfully.
“AI is going to be a tool that allows companies to do a better job and provide a better service to customers,” Lowcock says. “For example, dating sites use more effective AI tools. Companies can use AI to analyse data and provide insight more quickly than humans could. Companies that use AI to the best advantage can generate a huge competitive advantage on their peers and should grow.”
Tech anxiety
The problem when it comes to any new area of tech is that many investors’ minds turn to the late ’90s, early 2000s when the technology, media and telecom (TMT) bubble burst so spectacularly. A generation of investors has been put off investing in any form of tech, despite the pronounced growth prospects.
John Husselbee, head of multi-asset at Liontrust, is one such sceptic when it comes to AI funds. He says much of the tech being discussed in these new funds reminds him of the ‘blue-sky’ tech of the ’90s; namely lots of talk of the growth opportunities within companies, but no visible profits or earnings.
“My one rule when investing is to avoid fads and fashions,” he says. “This is because they come and go. Much like the fidget spinners kids were all crazy about during the summer. Where are they now?”
Instead, while he holds no tech funds at present, Husselbee says if he did invest in the sector he would go down the more generic tech fund route, where managers now have the experience of seeing market cycles and how individual sectors roll out.
Such funds would include Henderson Global Technology, Polar Capital Global Technology and Axa Framlington Global Technology, run by Riley’s colleague Jeremy Gleason.
“The best way to approach this is with established funds, which will give you the blend of established companies and exposure to these newer technologies,” he says.
Lowcock takes the same view. He says that by investing only in AI, investors could miss the best opportunities in the technology space.
“A pure AI fund is probably more suited to investors with large portfolios who already have exposure to all major equity markets as well as broader technology funds,” he says. “If investors think they know which tech companies are likely to succeed, it is worth remembering that Amazon is still in the consumer discretionary sector and isn’t a tech company in the eyes of the S&P, but is considered a tech giant.”
Lowcock also questions how much fund buyers really know about the tech sector and whether they can make calls on which areas are likely to perform.
“The potential of technology is huge but even technology fund managers have struggled to identify trends and capitalise on them,” he says. “In this respect, fund buyers are excellent at asset allocation but, in the same way they wouldn’t buy a small-cap fund that only invests in retail or consumer staples, I wouldn’t expect them to drill down to the next level of technology and decide which sub-sector is best.”
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