Walter Price, senior analyst and managing director of the RCM Technology Trust, is a big fan of internet TV, where scheduled and on-demand shows are piped down your phone line direct to your digital flat-screen. It's one of his key themes in a technology sphere that has been his bread and butter for over 30 years.
"It's an increasingly exciting opportunity as we are seeing the confluence of interest from users, advertisers, networks and technology providers." One example he uses is Nasdaq-listed Netflix, the world's biggest online steamer of films and TV shows. It has seen subscriber numbers soar from 300,000 to over 14m in 10 years, generating $1.67bn (£ 1.14bn) of revenue in 2009.
Mr Price has been with investment management firm RCM since 1974, and has been running the RCM Technology Trust, from offices in San Francisco, since being appointed by Allianz Global Investors in 2007. It's not been smooth sailing exactly.
"A year ago we were really worried about the end of the world, we couldn't find anything [investments] that would go up," he says. Little wonder that new investors have been hard to come by and even now "demand is still measured, people are still being careful with their money."
A changing world
But in the world of technology things change fast, as have the trust's share performance. The shares have beaten their Dow Jones Global Technology Index benchmark over the past 3, 6 and 12 month periods, while the stock jumped over 54 per cent between end-March 2009 and end-March this year, hitting 298.5p at one point. Today the shares change hands at 292p, just off that peak.
This time last year over 15 per cent of the trust's assets were tucked up in the relative safety of cash but today close on 93 per cent of funds are in equities, mainly in the US (77 per cent). Mr Price does, however, maintain a soft spot for China, or what he calls, "the engine that never really slowed down."
Opportunities in the Chinese economy are still there to be unearthed, such as Baidu, China's biggest online search engine. RCM Technology upped its stake in the company to 2.3 per cent after Google high-tailed it earlier this year following an online censorship and snooping row. "Europe is still very slow," he however points out, underscoring why RCM Technology has less than 6 per cent of net assets in the UK and on the Continent.
"A year ago money was very scarce," he explains, but there are now pockets of strong demand. "Semiconductor businesses are on fire," as chipmakers have "shut factories and disgorged inventories". These moves that have paid off big time as evidenced by strong Q1 results recently from Intel and Britain's own chip designer ARM.
| WALTER PRICE CV |
|---|
| Walter Price started managing the RCM Technology Trust in April 2007 after his US-based tech team caught the eye of Allianz Global Investors. An electrical engineering graduate from the Massachusetts Institute of Technology, he started his investment career covering the chemicals and technology industries at Boston-based Colonial Management in 1971 before joining RCM three years later as a technology securities analyst. Over the years he has managed many technology-based portfolios and has developed an investment style aimed at maximising long-term capital growth by investing mainly in shares quoted across the globe. |
The IT crowd
Today, RCM Technology's top 10 equity stakes reads like a who's who of the hi-tech industry; Microsoft, Oracle, Google, Apple. Such huge companies and brands might seem at odds with the trust's typical mid-cap focus, but as Mr Price points out, many large cap companies are looking very attractive.
"The top 10 US tech firms generate of $25bn a quarter," he says. "We hadn't owned [shares in] Microsoft for a while, but on a price-to-earnings (PE) ratio of 11, why not?" It's not as if he's purposely ignoring smaller companies, but he clearly is willing to bend in the hunt for bargains. "We still own [shares in] a lot of mid-cap companies," he insists, where market inflows have been gravitating recently, which should be good news for the trust's rough 45 per cent spread in small and medium-sized companies, including, "a fair chunk of Autonomy".
Businesses, like many governments across the developed world, are being driven by austerity measures at present, with many of the executives Mr Price talks to looking to save on "power and people." This is where the 'cloud' comes in. Corporate customers like the "flexibility and asset light model," says Mr Price. "Do you really want to spend $100m on IT infrastructure," he asks rhetorically. "Everyone I speak to says no."
Style or substance?
But isn't cloud computing just the latest fad to catch the eye of the notoriously fickle technology industry? Oracle's Larry Ellison seems to think so, calling cloud computing 'complete gibberish' and arguing that it implies nothing more that his company already does. Microsoft's Steve Balmer also insists that consumers are not ready for cloud computing.
Mr Price rises to the challenge. "I don't think it's [cloud computing] a fad at all." "About 50 per cent of IT projects fail – if a cloud vendor doesn't come through, you don't pay."
If the cloud is going mainstream it will likely mean we'll need a lot more of those huge, edge-of-town server sheds to supply offsite storage capacity. This should be good news for data centre operators, such as the UK's Telecity. "I recently saw Telecity yesterday and really like what they're doing," says Mr Price. "We also like Equinix", the Nasdaq-quoted worldwide data centre operator.
In the meantime, Mr Price plans to remain careful over valuation targets since he believes share price growth will come from earnings, not from re-rated PE ratios. And he will continue to sift through companies exposed to his favourite big themes – online commerce, internet TV, cloud computing, LED lighting - which he believes will shape the technology landscape long into the future.
