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Tech stocks are hard to value but are unlikely to collapse, according to one of Europe’s best-known fund managers.
Terry Smith, nicknamed Warren Buffett in English because of his approach to investing, wrote a letter to investors asking if companies like Facebook should be considered a communications or technology services company.
The Fundsmith Equity Fund’s biggest investment of £ 23 billion is in the technical sector, which accounts for 28.9%. For the year, the top five contributors to the fund’s performance are: PayPal PYPL,
+ 5.1%, IDEXX IDXX,
+ 3.1%, Microsoft MSFT,
+ 2.8%, Intuit INTU,
+ 1.5%, and Facebook FB,
+ 1.4%.
The last five were: Amadeus AMS,
-1.1%, Sage SAGE,
-0.6%, InterContinental Hotels IHG,
-0.6%, Becton Dickinson BDX,
-0.4%, and Philip Morris PM,
-0.2%.
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Smith wrote: “Some commentators have attributed our recent outperformance to the performance of tech stocks accompanied by warnings that a ‘bubble’ is building in tech stocks rather like the Dotcom bubble and could burst with similar adverse effects. .
The valuation, however, is different for companies with intangible assets.
“The return on intangible assets is higher because they have to be primarily financed by equity and not by debt and attract an appropriate return. Lenders seem to aspire to the often false security of loans against tangible collateral. Intangible assets can also last indefinitely if they are well maintained by advertising, marketing, innovation and product development and the duration of an asset is an important factor in determining its actual returns. ”
Smith, Founder and CEO of Fundsmith, wrote, “What do the following companies have in common?” citing Amadeus, ADP for automatic data processing,
Facebook, Intuit, Microsoft, PayPal, Sage and Visa V,
“They all belong to our fund and are all labeled as tech companies,” he wrote. “Yet they cover airline reservation systems; payroll processing; social media, advertising and digital communications; accounting and tax software; operating systems, distributed computing (the “cloud”), software development tools, business applications and video games; and payment processing.
“I would say that the centuries-old drivers of these companies have distinct differences and their outlook is not governed by a single factor – technology. This universal label doesn’t help much in evaluating them. “
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Estimated at £ 300million ($ 411million), Smith established his reputation at Barclays from Zoete Wedd and UBS Phillips & Drew, becoming managing director of Collins Stewart, which became business-to-business broker Tullett Prebon before parting ways at new.
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