Technology stocks are hard to gauge, but are unlikely to fall, according to one of Europe’s best-known fund managers.
Terry Smith, who has been christened as Englishman Warren Buffett, because of his investor approach, wrote a letter to investors asking if companies like Facebook should be considered a service or communications technology company.
The largest investment of the £ 23bn Fundsmith Equity Fund is the technology sector which accounts for 28.9%. During the year, the top five contributors to the fund’s performance were: PayPal PYPL,
+ 5.1%, IDEXX IDXX,
+ 3.1%, Microsoft MSFT,
+ 2.8%, Intuit INTU,
+ 1.5% on Facebook FB,
+ 1.4%.
The last five were: Amadeus AMS,
-1.1%, Sage SAGE,
-0.6%, InterContinental Hotels IHG,
-0.6%, Becton Dickinson BDX,
-0.4% and Philip Morris, Prime Minister,
-0.2%.
Read: Here is the case of Elon Musk, Warren Buffett and the rest of American billionaires who send $ 3,000 stimulus checks to everyone
Smith wrote: “Some commentators have attributed our recent overcoming to the performance of technology stocks accompanied by warnings that a ‘bubble’ is set in technology stocks rather like the Dotcom Bubble and that it can explode with similar effects.”
The valuation, however, is different for companies with intangible assets.
“The profitability of intangible assets is greater, as it is mostly necessary to finance it with own resources and not with debts and to attract an adequate return. It seems that lenders want the often false security of loans against tangible collateral. Intangible assets can also last indefinitely if they are well maintained by advertising, marketing, innovation and product development and the duration of an asset is an important factor in finding out its real returns ”.
Smith, who is the founder and CEO of Fundsmith, wrote “What do the following companies have in common?” citing Amadeus, ADP for automatic data processing,
Facebook, Intuit, Microsoft, PayPal, Sage and Visa V,
“They are all owned by our fund and they are all labeled as technology companies,” he wrote. “However, they cover airline reservation systems; payroll processing; social media, digital advertising and communications; accounting and tax software; operating systems, distributed computing (the “cloud”), software development tools, business applications, and video games; and payment processing.
“I would suggest that the secular drivers of these companies have some differentiated differences and that their prospects are not governed by a single factor: technology. This unique label doesn’t help much in evaluating them.”
Read: China’s manufacturing data, Buffett’s new stakes in Japanese companies, boost Asian markets
Estimated to be worth £ 300 million ($ 411 million), Smith established his reputation at Barclays of Zoete Wedd and UBS Phillips & Drew, becoming executive director of Collins Stewart, who became an intermediary. Tullett Prebon before separating again.