Farming for tech profits
Philip Macalister meets a man who runs a technology fund from a farm in Canterbury.
Friday, August 22nd 2003, 7:57AM
Take Paul Davis for instance, while he is a part-time farmer on a block of land on Banks Peninsula in Canterbury, he is also a fund manager for Sydney-based TechInvest.
Davis is the chief investment officer for the company, which runs a number of funds including the ASX-listed Technology Investment Fund (ASX code: TIF), and the fund involved in Capital Guaranteed Investments Orb fund.
The Orb fund gives investors exposure to the technology sector, and also provides a capital protection through Citibank.
Davis says although many people are frightened off technology following the sector’s spectacular bubble burst in 2000, it is still a vital part of the world economy.
Currently it makes up about 30% of the market, but more importantly it is the engine that will drive further growth.
“The overall returns from this area will outpace the broader market,” he says. This is particularly over the long-term. “Technology will again be the growth engine.”
He says a lot of people associate technology with the dot.com companies, however the sector is much broader and includes the likes of pharmaceuticals, biotechnology, information technology and communications. One distinction he makes, compared to earlier definitions of technology, is that media is excluded.
What may surprise people some more – besides liking tech – is that Davis is quite keen on Internet stocks at the moment.
During the bubble people were paying ridiculous prices for Internet companies that were no more than a concept and had never made a dollar.
Davis, who has 20 years experience in tech, says that he wasn’t big in this sector then and sold out all of his Internet stocks by 1999.
Now though there are a whole range of Internet companies from the big portals through to smaller niche players that are delivering what they promised. Davis says in many cases they are doing better than people expected.
One of the secrets though is in how these businesses are valued. Davis dismisses all the quaint methodologies that were dreamed up, but sticks to tried and true accounting concepts like discounted cash flow, to establish valuations.
Davis has a number of other favoured areas at the moment including semi-conductor manufacturers, the makers of wide screen monitors and manufacturers that are involved in the area where telephones and PDAs converge. Also he likes some of the smaller pharmaceutical companies, however, he notes that companies have to have drugs in the market place as opposed to be trialling drugs. Another related area of interested is what he calls “biotech drugs.”
Areas he is not so keen on include companies that provide networking and telephone equipment.
He says many people have looked at these companies as recovery plays, consequently their “prices have run up quite markedly.”
He says there is also a lot of over-capacity in these industries so it’s unlikely they will see strong out-performance.
While Davis believes in technology, many investors have yet to get over the tech wreck of the late 1990s. “There are not many people who are brave enough to go back into technology without the benefit of a guarantee,” he says. That is why the fund has been structured with the rising guarantee which means investors will get all their capital back, even if the markets tank.
He says the capital guarantee does have a cost to it, but it’s not particularly large.
“The capital guarantee doesn’t cost much and it’s not a big drag on returns after fees and tax.”
From Davis’s perspective it is an ideal time to be getting into technology as the sector is neither on a crazy upward slope, nor is it spiralling downwards.
| « What Cullen said about Australian unit trusts | Market Review: Is a day of reckoning coming for the US Dollar? » |
Special Offers
Commenting is closed
|
|
Printable version |
|
Email to a friend |
