The new wave of game-changing technology is the real deal both in terms of the underlying promise and investability, according to Indy Singh, founder of ASX-listed financial services firm Fiducian.
In NZ earlier this month, Singh said unlike the pre ‘Tech Wreck’ period of the late 1990s to early 2000, technology stocks are delivering “sustainable” free cash-flow while maintaining reasonable valuations.
He said the current price/earnings (P/E) ratio for the tech-proxy Nasdaq index stands at 25 compared to about 200 at the height of the first internet investment mania in 1999. After plunging in the wake of the 2000 tech stock crash, the sector has outperformed in both earnings growth and free cash-flow margins compared to broader market.
Despite talk of a new tech bubble, Singh said high-profile tech firms like Apple, Google, Cisco, Intel and Oracle were trading at P/Es ranging from 13 to 20.
“Earnings, not P/E multiples, are growing [in the tech sector],” he said. “This time around, it’s profits that are driving returns.”
However, Singh said the disparate nature of the tech sector – featuring a wide range of specialised, often speculative, ventures – lent itself to active management.
For instance, dispersion, which measures the independence of individual stock prices relative to others, was highest in the technology sector compared to all other market sub-indices.
Launched in June 2000, the Fiducian Technology Fund, which features Wellington Management Company as the underlying manager, tackles the challenge by investing across four broad themes: bio-tech; robotics; artificial intelligence; and, nano-technology.
Singh said the aim of the fund, which recently brought on its first NZ investors, was to access the future technology winners directly rather than ‘nuts and bolts’ suppliers to the relevant industries.
The two underlying Wellington funds can hold between 30-100 stocks each across a wide potential universe.
While the Fiducian portfolio does currently include a number of household tech names such as Apple and Alphabet (the Google holding company) – albeit at underweight positions – it does exclude other sector darlings including Microsoft, Intel and Amazon.
Meanwhile, the fund’s bio-tech portfolio contains 52 companies, very few of which have high marketing profiles. For example, Fiducian’s top five bio-tech holdings Celegene, Vertex Pharma, Biogen, Loxo Oncology, and MyoKardia are hardly global consumer brands.
Net of fees cent (a total annual charge of 1.49 per cent), the Fiducian tech fund has returned just over 27 per in the five years to the end of September compared to the benchmark 19.9 per cent.
“For this Fund, there is no relevant market index, although the MSCI Technology and Communications Index can be considered a reasonable proxy for a technology portfolio,” the Fiducian product disclosure statement says. “The objective is to exceed this index (after fees) over rolling 3-year periods.”
Singh said technology would continue to evolve and drive investor returns regardless of other developments in the social and political spheres.
He said technology alone could support global growth over the next 50 years, and indeed was essential if the world economy is to support a growing population.
“Only productivity can ensure that per capita income grows faster than population growth,” Singh said. “And only technology can make that happen.”
Listed on the ASX in 2000, Fiducian is a diversified financial services company providing funds management and superannuation products, a financial planning dealer group network as well as investment platform and advice technology.
The Sydney-based group offers three products – the Technology, India, and Ultra Growth funds – in the NZ market under the trans-Tasman mutual recognition agreement. Fiducian is supported by Heathcote Investment Partners in NZ.