Investment trust managers investing in technology, media and telecommunications believe the sectors...
Investment trust managers investing in technology, media and telecommunications believe the sectors could be punished further before a rerating begins.
Nearly two and a half years of underperformance compared to old economy stocks has left tech stocks looking oversold and reduced the NAVs of trusts investing in the sector.
Bryan Lenygon, chairman of the Finsbury Technology Trust, says: 'The global equity markets have continued to decline and we are in the midst of the most severe and sustained bear market since the 1970s.
'The technology sector has been particularly badly hit, with the Nasdaq Composite Index, for example, having fallen by nearly 70% since its peak in March 2000.'
This, he says, presents managers with opportunities but it is hard to see what will turn investor sentiment around.
'Many technology shares have been oversold and represent good long term value,' says Lenygon. 'However, in the near term, it is difficult to see a catalyst that will drive a sustained increase in the sector, particularly as technology stocks are traditionally weak over the summer.'
With mixed economic data, the threat of further terrorist outrages, continuing violence in the Middle East and the accounting scandals at Enron, Xerox and WorldCom, it is possible equity markets will experience further declines.
In the long term, however, he remains bullish. 'The technology sector is volatile and, in the past, has experienced a number of strong bull and bear markets,' he says.
'Its prospects in the short term are uncertain. However, the sector retains strong growth characteristics and, at current valuations, a significant number of technology companies represent good long-term value.'
Like most trusts in the sector, Finsbury Technology's interim six-monthly report makes grim reading, with the trust's assets having fallen to £67.1m at the end of May from £88.8m at the end of November, a decrease of 24.4%.
The annual report and accounts for the Polar Capital Technology Investment Trust also show a significant decline in NAV ' 28.4% from 30 April 2001 to 30 April 2002. In that period, the assets fell from just over £400m to around £287.3m.
Brian Ashford-Russell, manager of the trust, describes the past two years as horrendous for investors but is more optimistic than Lenygon that a bottom has been reached in the market.
Ashford-Russell notes: 'Although the sector continues to face many issues and a return to boom conditions is a distant prospect, the vast majority of damage has been done.
'In the mid 1980s, it took two and a half years after the peak of the PC boom for the sector to find a sustainable low. It is nearly that long since the March 2000 peak and we expect a similar outcome.'
Ashford-Russell sticks to his prediction for a third-quarter bottom and subsequent cyclical upturn. 'In previous boom-bust periods, such cyclical upturns have delivered returns of as much as 40% to 50% from trough to peak before giving way to a 15% to 20% correction,' he says.
Bottom of market approaching.
Valuations looking attractive.
Cyclical rebound in third quarter.
Technology bear market may continue.
Many old tech leaders are yesterday's news.
Positive catalysts hard to identify.