Tap into tech growth with GLG

There have been questions over another bubble: LinkedIn's IPO and inflated share price last year made people nervous and Renren, China's equivalent to Facebook, saw its share price drop dramatically after it went public last year. But financial advisers are unperturbed. "I don't think we will see another bubble. In the run up to the tech bubble, companies were merely burning through their cash and had little or no earnings to speak of. Now we have firms producing revenue, and huge players with massive cash piles such as Microsoft, Apple and Google," says Darius McDermott of Chelsea Financial Services.

The sector is also enjoying strong dividend growth - Apple recently started paying a dividend while Microsoft increased its own by 25 per cent in September last year. Peter Vanderlee, co-manager of the Legg Mason US Equity Income Fund, comments: "There has been a philosophical change in Silicon Valley over the last ten years. Paying a dividend is no longer necessarily a sign your best growth days are behind you. Indeed, now it's more likely to reflect financial strength as increasing numbers of technology companies embrace the concept of dividends as a way to reward long-term shareholders."

That said, in a high risk sector such as tech, a focus on preserving capital remains important. The GLG Technology fund is managed by Philip Pearson and Anthony Burton, who adopt an absolute return mentality when seeking out companies in the tech, media and telecommunications space offering capital growth.

Since the two managers took over the reigns of the fund in June 2009, following GLG's acquisition of SGAM UK, performance has been stellar. The fund delivered a positive return of 87 per cent since the managers took over compared to a sector average of 78.6 per cent (to April this year). Less favourable stock market conditions year-to-date have seen the fund fall by 0.79 per cent, but that's less than the peer-group average fall of 4 per cent, ranking it second in its sector.

Shares are selected based on stock-specific and thematic considerations, not geographical ones. That's resulted in a relatively concentrated portfolio, with more than 50 per cent of its assets held in the top ten holdings, and an inbuilt bias towards US companies.

The two managers believe that it is "an alpha rich time" to be in the technology sector because of the disruption caused by new technology. "The iPad has no Microsoft, Adobe, Intel, Symantec or McAfee, no mouse or keyboard, no USB and no disk drive," they point out. Some companies will not survive this transition, with companies like ARM (the fund's largest holding) and Apple (another top ten holding) posing a huge threat to the PC giants Microsoft and Intel.

The fund isn't cheap, with a total expense ratio of 1.92 per cent, although this is broadly in line with other funds in the IMA's Technology and Telecommunications sector. Single-sector funds can be risky and volatile, too, but active management can and should reduce that - if the managers don't want to buy a particular stock, they are not forced to. A good example is Apple, which accounts for an uncomfortably large 17.6 per cent of the fund's benchmark index, but only 6.9 per cent of the fund. Such experience should reap rewards in the long term. Buy.

Source: Investors Chronicle Funds Data, GLG

Performance figures as at 22 May 2012

Top 10 holdings (as at 30 April 2012)

Geographic Breakdown