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My parting shot in last month's column (Taking profits and backing winners) was that I had added to the existing holding of Polar Capital Technology Trust (PCT) within the growth portfolio. You'll notice that both portfolios hold this trust, and there are some good reasons for that.
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I've suggested before that investors can expect below average growth in the western economies for some years to come as consumers, businesses and governments pay off their huge debts. In such an environment, investors will be rewarded for identifying those stocks that deliver above-average growth. This is where the technology sector comes in.
The sector has come a long way since the tech bubble burst in March 2000, and is now in much better shape. As Investors Chronicle pointed out recently (Time for tech, 5 Feb 2010), business models that relied on continual injections of fresh funds have gone, replaced by cash-generative operations and strong balance sheets. For example, software titan Microsoft has $30bn in net cash, while networking giant Cisco has $25bn.
Meanwhile, a new technology cycle is unfolding. Corporate investment in technology has fallen significantly in recent years, with some experts suggesting that spending as a percentage of GDP is at a near 40-year low. This ageing equipment will have to be updated – a process helped by the fact that, because of advances in technology, the payback period is much quicker than it used to be. In a slower growing economy, the need to increase productivity will be paramount, and technology will be a key driver.
What else? Find out more about the case for technology, the performance of the investment trust portfolios and other recent changes - read the full article on our website!
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-IC-2.1.3g-prod - 17/03/2010 18:13:09 - ben.wheeler
