GLG Partners’ Ben Funnell has boosted tech exposure on the GLG Performance fund in the view the next expenditure cycle in IT is overdue.
The fund’s strategist now has 18% of the £625m fund in technology, having added 3% to the position since December. Holdings include Microsoft, Cisco, IBM, Autonomy and SAP.
The portfolio has a 5% overweight to the sector compared to its benchmark the MSCI World.
“Big US technology firms trade on 16.3 times forward earnings, just an 8% premium to the S&P’s P/E, even though technology stocks could display double the S&P’s earnings growth over the next five years,” Funnell says.
To finance its overweight technology position, the fund, which is managed by Pierre Lagrange, has moved underweight staples, healthcare, utilities and telecoms.
It has been overweight IT firms for over 12 months, having seen fixed investment by businesses collapse relative to depreciation, meaning the capital stock shrank for the first time in decades.
Funnell says indicators point to “a fairly substantial recovery in business investment over the next six to 12 months”.
He expects IT companies to be among the primary beneficiaries as companies upgrade their equipment, including buying new PCs.
Widespread PC purchasing is 18 months overdue, given that PCs become uneconomical after four years, Funnell says
He adds companies are spending 65% of their total fixed investment on IT, the lowest proportion over the past 20 years.
“Technology is likely to be a rising share of the pie over the next five years, and this is the start of a structural bull market in IT,” Funnell says.
He says global equities trade at multiples of forward earnings below their long-term average.
Recent analysis by Credit Suisse showed the last time seven leading economic and market indicators stood at current levels, US shares were 15% higher.
“Markets are about 10% cheap on a straight P/E basis. You could conceive a 20% upside in equities on this basis,” Funnell says.
“Now we are in the sweet spot of earnings expectations continuing to rise, but rates are on hold in the West.”
