Australasian technology stocks currently offer good value, according to Harbour Asset Management chief, Andrew Bascand.
In a presentation to the Portfolio Construction Forum (PCF) in Auckland last month, Bascand said the recent high demand for defensive stocks could have “created a medium-term relative opportunity” for local tech investors.
“… a basket of largely uncorrelated NZ and Australian tech stocks is valued attractively relative to the broader market,” he said in the PCF presentation. “The sector carries much higher idiosyncratic risk, but that is where the combination of diversification and active management can provide attractive medium-term opportunities.”
He told the PCF crowd, which numbered about 250 over the two-day conference, that the Australasian tech sector, which is heavily-weighted to the ‘software as a service’ (SaaS) industry, shows some similarities with global peers.
“However, in New Zealand and Australia, valuation dispersion in the tech sector is very high, with no real consistency in valuation relative to revenue growth,” Bascand said. “Some companies with high prospective growth have lower valuations than those with lower growth rates. This dispersion may create opportunities for active investors.”
He said globally the sector still suffers the hangover effects of the late 1990s ‘tech wreck’, which saw a disastrous collapse in valuations on companies with over-optimistic business models.
“Many investors still hold the perspective that tech is high volatility and high risk and that companies have short product cycles. The Tech Bubble is still a psychological factor for investors,” he said. “And yet, today, pure tech makes up 20% of the broader US equity market and 13% of the global equity market. Tech sector earnings have become more diversified and more reliable, generating growth of 10.0% per annum in the last 10 years compared to the broader market growth rate of 6.5%.”
And while the local tech sector may lack depth compared to offshore developed markets, Bascand said savvy investors could still have derived relatively attractive returns from Australasian technology companies over the century to date.
“An equally-weighted basket of New Zealand and Australian tech stocks outperformed the NZ equity market in 11 of the last 14 years (to March),” he said. “The same basket of stocks also outperformed the broader NASDAQ in 12 of those 14 years.”