Technological stocks are difficult to estimate, but unlikely to collapse, according to one of Europe’s most prominent fund managers.
Terry Smith, who was named the Englishman Warren Buffett because of his investment approach, wrote a letter to investors asking whether companies like Facebook should be considered a communications service or a technology company.
The largest £ 23 billion investment by the Fundsmith Equity Fund is the technical sector, which accounts for 28.9%. For the year the five best participants in the presentation of the fund were: PayPal PYPL,
+ 3.1%, Microsoft MSFT,
+ 2.8%, Intuit INTU,
+ 1.5% and Facebook FB,
The bottom five were: Amadeus AMS,
-1.1%, Sage SAGE,
-0.6%, InterContinental Hotels IHG,
-0.6%, Becton Dickinson BDX,
-0.4%, and Philip Morris PM,
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Smith writes, “Some commentators attribute our recent advances to the performance of technology stocks, accompanied by warnings that a ‘bubble’ is accumulating in technology stocks, like Dotcom Bubble, and that it could explode with similar detrimental effects.”
However, the assessment is different for companies with intangible assets.
“The return on intangible assets is higher, as they mostly need to be financed with equity rather than debt and attract an appropriate return. Lenders seem to crave the often false security of lending against collateral. Intangible assets can also go on indefinitely if well maintained through advertising, marketing, innovation and product development, and the duration of the asset is an important factor in determining its actual return. ”
Smith, who is the founder and CEO of Fundsmith, wrote “What do the following companies have in common?” Quoting Amadeus, ADP,
Facebook, Intuit, Microsoft, PayPal, Sage and Visa V,
“They are all owned by our fund and all are labeled as technology companies,” he wrote. “And yet they cover airline reservation systems; payroll processing; social media, digital advertising and communications; accounting and tax software; operating systems, distributed computing (“cloud”), software development tools, business applications and video games; and payment processing.
“I would assume that the secular engines of this business have some clear differences and that their prospects are not governed by one factor – technology. This universal label does not help much in their evaluation. “
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Expected at £ 300 million ($ 411 million), Smith built his reputation at Barclays de Zoete Wedd and UBS Phillips & Drew, becoming CEO of Collins Stewart, who became Tullett Prebon’s broker before splitting again.