Don't Give Up On Tech! Aberdeen Tech Manager Tells Investors
October 26, 2001
That's the message Ben Rogoff has for skittish investors. He gives his reasons why they shouldn't write off the tech sector.
Author : Bharathi Rajan
Untitled Document A TECH RECOVERY BY MID 2002?
(Fundsupermart.com) The technology sector has certainly not been kind to investors in the last 18 months acknowledges Ben Rogoff. And he should certainly know. The twenty-nine year old is one of the fund managers for the Aberdeen Global Technology Fund, in town to talk to investors. Since its inception in November 1999, the fund has returned -48.3% (see table below), a harsh reminder perhaps, of the volatility of a sector that has suffered heavily from the dot-com crash and ensuing global downturn. The recent September 11 attacks in New York is likely to worsen matters for a while adds Rogoff, as further weakness in the global economy and softer consumer confidence continue to be a concern for the fund which has over 70% of its holdings in US technology companies (see geographical allocation). These companies depend substantially on consumer confidence to encourage corporate IT spending, thus improving earnings. They are expected to suffer in the short term as analysts that had previously forecast a rebound in the economy in latter part of this year, now push further their predictions to late 2002 or early 2003.
While the situation might appear rather bleak now, there are plenty of good reasons to stay invested in tech argues Rogoff. He believes the worst is over for the tech sector and that investors could be seeing signs of a recovery as early as the middle of next year.
INNOVATION IS THE KEY
Rogoff is quick to point out to concerned investors that technology is an extremely cyclical sector that is driven by innovations which he calls 'killer applications'. He notes these killer applications like the internet for example, can sometimes take a while to catch on, but once they do the potential for growth is very high. "It's a sad thing but technology is not about innovation that takes place today. Its often about technology that has been around for some time but becomes pertinent at a certain period in time."
That is why he emphasizes that it's unwise to write off the technology sector, even if it has been languishing for the past 18 months. Rogoff who reveals that he has 90% of his personal investments in tech, says two trends - software spending and semiconductor line reduction, are solid indications that technology has become an important and irrevocable aspect of everyday life. The former has been growing steadily over the last 40 years as software spending allows companies to manage their business better. The latter, the process through which semiconductor chips become smaller and powerful, means that technological devices such as computers can continue to become faster, smaller and more powerful than ever before."There's no going back. It is not possible to rewind the clock. Technology spending is a greater part of GDP and consumer spending than it was 40,30,20 years ago. We only have to look around to see how technology has penetrated our lives. The world is getting smaller. Globalization means more competition, and you need to make productivity gains relative to your peer group to compete effectively, and you need technology spending to achieve that productivity"
GROWTH TRENDS IN TECHNOLOGY
Looking ahead, Rogoff notes that the following trends should provide the momentum for growth in the tech sector for the short to medium term.
Wireless Technology - although 3G technology has been delayed, there are several innovations in the works for mobile phones. New features, design, size and power for a new range of mobile phones could fuel the replacement of handsets. New handset sales in the US is expected to increase if the US switches to a user pays system.
Computer Gaming - 2-3 new consoles are being launched in a space of 12 months. Sales could reach over 120 million units. These gadgets also have parts that are created by other tech companies.
Videoconferencing - a couple of companies dominate in this area. It has become more pertinent since September 11, and demand for videoconferencing is expected to increase.
Computer Security - companies have spent millions building corporate networks (i.e intranets) and they can't afford to leave these unprotected. This is especially relevant for e-commerce, where security and privacy for transactions is critical.
Of all these trends, Rogoff says that he is the most bullish about wireless technology as this shows the most potential for growth. "There is a massive handset market out there. Now the average age of a phone in circulation is 18 months. We think that in 2002, we will see a combination of factors that will drive the upgrade cycle. There will be changes in the form of the phone, where there will be new features added on to phones with different designs. We are talking of a market of 400 million phones. Nokia believes that in the fourth quarter this year, 40% of the demand will come from the replacement market rather than new subscribers."
Performance Table of Aberdeen Global Technology Fund as at 31 August 2001
Since Launch Nov 99
Source: Aberdeen Asset Management; Benchmark: Merrill Lynch 100 Technology Index
TOP 5 Holdings (as at 31 Aug 2001)
IBM - 3.2% Microsoft - 2.8% ARM Holdings - 2.2% Cisco Systems - 2.1% Compaq Computer - 2.0%