Investment advice: Is it time to invest in the #dotcom shares?

Cynics have delivered warnings that dot-com 2.0, as some have dubbed the re-emergence of technology as an investment theme, will end in the same way that it did first time around. But investors have already begun to make decent returns. Axa Framlington Global Technology and Polar Capital Technology, two longstanding funds offering UK investors exposure to the sector, have both risen up by more than 20 per cent in the past six months alone.

Ben Rogoff, the manager of Polar Capital Technology Trust, says this performance has come from a broad range of companies — and that the outlook is promising. “We see the (Facebook) IPO reinforcing our core thesis,” Mr Rogoff says. “We are in the early stages of a disruptive new technology cycle, which offers the potential for next generation companies to deliver strong secular growth even against a challenging economic backdrop.”

Maybe. But is a technology investment right for you — either as this year’s fund choice for your individual savings account (Isa) allowance or as part of your wider portfolio?

Not if you’re an inexperienced investor or someone who can’t risk short-term volatility. Certainly not if you don’t already have a good spread of stock market investments, both in the UK and globally, or if your horizons are anything other than long-term — five years, at least.

If you pass those tests, it’s reasonable to consider adding specialist investments to your portfolio. The key, say investment experts, is to buy the long-term story for that speciality — technology or any other — but also to accept that even professionals frequently get market timing wrong. It may take time for your instincts to be proved right.

“I would generally avoid trying to time markets or sectors and a really well diversified portfolio will give more consistent returns and probably incorporate technology companies,” says Duncan Carter, a chartered financial planner at Clearwater Financial Planning. “That said, I’ve advised a client just this week who specifically wanted to take a ‘punt’ on technology funds.”

Other financial advisers report similar demand, with many investors arguing that technology companies have matured since the first dot-com boom and bust. “In contrast to the late 1990s, when companies where burning through cash and had little or no earnings, today we have firms producing revenue and changing the way we live our everyday lives,” says Juliet Schooling Latter, head of research at Chelsea Financial Services.

“Many of these companies are sitting on huge cash piles, which some, like Apple, have started to turn into dividends. Others may look to buy up smaller companies, so we may also see some M&A (mergers and acquisitions) activity later this year.”

Rob Morgan, an analyst at Hargreaves Lansdown, is also excited by the cash that has been generated by large and successful technology companies — the world’s seven largest businesses have $300bn at their disposal.

“I think technology could be an interesting choice for investors’ Isa allowances this year,” he says. “The uptake of mobile devices and ubiquitous computing has been massive, but there could be much further to go — Apple’s ecosystem of hardware and software suppliers in particular is providing plenty of investment opportunities.”

These are compelling arguments, particularly given the opportunity to invest in profitable, established businesses (as opposed to the high-risk start-ups of the late 1990s). Indeed, while IPOs such as Facebook have captured popular imagination, fund managers are looking elsewhere. Mr Rogoff targets three themes: internet infrastructure, broadband applications and mobile data.

That said, you should hear the sceptics out. “Technology has had a good run recently but I can see no compelling reason why this run should continue other than the madness of crowds,” says Scott Gallacher, an investment specialist at financial adviser Rowley Turton. “Investors chasing returns could drive up technology share prices for a little while, but this is speculation rather than investment.”

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