Technology stocks are hard to capitalize on, but are unlikely to collapse, according to one of Europe’s best-known fund managers.
Terry Smith, who was nicknamed the Englishman Warren Buffett because of his investment approach, wrote a letter to investors asking if companies like Facebook should be considered a communications service or a technology company.
The largest investment in the £ 23 billion Fundsmith equity fund is the technical sector, which accounts for 28.9%. For that year, the top five participants in the fund’s performance were: PayPal PYPL,
+ 5.1%, IDEXX IDXX,
+ 3.1%, Microsoft MSFT,
+ 2.8%, Intuit INTU,
+ 1.5% and Facebook FB,
+ 1.4%.
The first five were: Amadeus AMS,
-1.1%, Sage SAGE,
-0.6%, InterContinental Hotels IHG,
-0.6%, Becton Dickinson BDX,
-0.4%, and Philip Morris PM,
-0.2%.
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Smith wrote: “Some commentators have attributed our recent performance to technology stock performance, along with warnings that a“ bubble ”is accumulating in technology stocks, rather like Bubble Dotcom, and that it could explode with similar negative effects.
However, the valuation is different for companies with intangible assets.
“The return on intangible assets is higher, because they must be financed mainly with equity, not debt and attract an adequate return. Lenders seem to 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 determining its true profitability. ”
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,
“All are owned by our fund and all are labeled as technology companies,” he wrote. “However, they cover airline reservation systems; payroll processing; social media, digital advertising and communications; accounting and taxation software; operating systems, cloud computing, software development tools, business applications and video games; and payment processing.
“I would suggest that the secular leaders of these companies have some distinct differences and that their perspectives are not governed by a single factor – technology. This unique label doesn’t help much in evaluating them. ”
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Estimated to be worth £ 300 million ($ 411 million), Smith established his reputation at Barclays with Zoete Wedd and UBS Phillips & Drew, becoming executive director of Collins Stewart, who became Tealett Prebon’s interdeal broker. before separating again.