Dotcom bubble may yet provide some welcome buoyancy

Published on Friday 27 February 2009 19:35

MENTION the word "bubble" in investment circles and many will cast their minds back to the turn of the millennium. A time when our computers were supposedly going to crash unless they were made Y2K compliant, and when investors clamoured to get in on the spectacular growth potential offered by technology stocks. Ultimately, as with all bubbles, the technology, media and telecoms variety duly burst.

Fast forward to the current unwinding of the credit bubble and, according to Edinburgh based co-manager of the Henderson Global Technology fund, Ian Warmerdam, some areas of the technology sector could prove to be resilient despite the current negative outlook for the economy. "The sector goes through periods of attracting too much capital causing bubbles, but it's been out of vogue for many years. Unusually the sector is currently valued at a discount to the market as a whole."

Warmerdam is mindful of public perception of the sector he invests in, but explained that he and co-manager Stuart O'Gorman don't get carried away with companies that race ahead.

"We're good at identifying the sectors that will do well and the ones that will struggle," he said.

"We've tended to stay away from consumer electronics and commodity areas in the current climate. We don't agree that demand will snap back fast in the latter part of this year."

Two-thirds of the fund is invested in US stocks, including household names like Microsoft, Apple, and Intel. Interestingly, the stock Warmerdam enthuses most about is a UK company called Autonomy, a provider of "meaning-based computing".

"This technology enables companies to search their entire network for documents that relate to a certain topic because it is able to infer meaning rather than simply being able to search for the use of a specific word," Warmerdam explained. "As you can imagine, this is proving incredibly useful in litigation cases."

As one of Europe's largest managers of technology funds, Henderson can verify how good Autonomy's technology is compared to global competitors. Warmerdam and colleague O'Gorman normally plan to hold stocks in the portfolio for about three years, but their valuation discipline can mean that this period is shortened to around 18 months.

For more information contact Henderson Global Investors on 0800 832 832 or visit www.henderson.com

&#149 Barry O'Neill is a chartered financial planner with Thomson Shepherd Limited (incorporating Coggans Wood).