Tech funds: a decade after the demise of pets.com
IT has now been more than a decade since the dot-com boom and bust, which at its height resembled a gold rush as investors wanted to pile into anything and everything tech-related. But after tech funds imploded with the demise of pets.com and its litter, is it a case of once bitten, twice shy for investors?
The most infamous feral dog of the tech start ups was pets.com, an online company offering pet supplies to customers. During its first year of trading, the website earned revenues of $619,000, but spent $11.8m on advertising. Fuelled by the dot-com hype, the company hit a share price of $11, before coming crashing down to earth at $0.19 on the eve of its liquidation. Though the company is synonymous with the dot-com bubble, it was not alone in its spectacular fall from grace.
According to Lee Robertson, CEO of wealth managers Investment Quorum, investors are still wary of all things tech: “We haven’t seen much interest in technology funds. A lot of people are still burnt from the last time, where they had tech funds thrust upon them purely on the basis of short term performance.” Investment Quorum was formed after the bubble, but during the dot-com period Lee Robertson says the mentality from a lot of people was “give me a tech fund, any tech fund will do.”
However, rather than all technology funds warranting a place in the same river-bound bag, there are a growing breed of funds that have learnt from the mistakes of others and diversified their portfolios with medical and clean-tech stocks joining the internet companies. At the same time, they are taking an active role in the management, rather than taking a broad sectoral approach. One of these is the RCM Technology Trust, managed by Walter Price, who says: “We are finding attractive opportunities in China, solar power, as well as energy efficiency and LED lighting. In our view the internet still has significant further growth, in both its market share of retailing and advertising spend.”
According to Price, “overall, investors are struggling to find genuine growth companies in much of the developed world so we believe that a fund of carefully selected global technology shares makes for a very attractive component of a balanced portfolio. However, there will be significant losers as well as gainers in the sector, and many of the losers will be larger companies – so we don’t believe a passive approach makes sense in this sector.”
The memory of the dot-com bubble is a recent one, but the market has now matured with more realistic valuations, even for the tech giants. ARM holdings, the company that designs microchips for the Apple iPad and iPhone, on Wednesday reported first quarter pre-tax profits of £50.8m, a 35 per cent rise. As such, investors may well now see this as the time for investors to venture back into tech funds.