According to the New York Times [1], venture capitalists want to put more money into technology investments, after parting with a mere $14 billion in 2009, compared to $36 billion in 2007.
Technology start-ups are doing everything from speeding up the Web to making office photocopiers more iPod-like, and as the article notes some will go public:
Venture capitalists make most of their money on initial public offerings of the tech companies they invested in.
But in each of the last two years, fewer than 10 companies have gone public, compared with 86 in 2007.
The new year could finally break the logjam, bringing more than 50 tech offerings, investment bankers say. That could include prominent companies like Facebook.
That is welcome news after a dark year, Mr. Dhaliwal said. “The mood is pretty optimistic, in that way that if you’re nearly killed in a car accident you’ve got a renewed positive outlook on life.”
Good news if you’re an investment banker, but what if you’re an investor?
Passive investors in equities won’t worry about what’s flavor of the month – they’ll just keep dripping money into the market. Index tracking will win [2] against most ‘clever’ strategies.
However if you’re a UK reader, you might not have much exposure to technology stocks via the UK indices.
The UK has a couple of excellent companies like Autonomy, ARM and boring old Sage, but then there’s a long way down to the likes of Blinkx [3].
In comparison, most US trackers will have more money in technology stocks, including big names like Apple and Cisco.
Does it matter? Maybe not. Anyone who rode the tech bubble in the late 1990s only to see it burst might think they’re best out of it. Also, plenty of companies will benefit from technology, even if they don’t create technology. So your portfolio is still exposed to any advances.
Personally, I think technology is too important to ignore, and in early 2009 I judged it cheap, too.
Most of the big technology companies had stacks of cash, and were trading at multi-year lows. Everyone still remembers the dotcom crash, but today’s companies are the hugely profitable survivors.
I also think we may be on the cusp of a new technology cycle (my day-to-day business is linked to the tech sector, for what it’s worth). I’d rather be wrong about this when shares are still cheap!
As a result, I decided to allocate a little extra money in March last year.
How to invest in technology
If you also want to invest more in technology, there are several different ways.
Buy technology company shares
You could invest more money in the big UK names like Autonomy or ARM, or you could buy US stocks like Apple and Google. Obviously investing in individual stocks is the riskiest strategy.
Invest via a fund or investment trust
I wouldn’t bother looking at funds, which are often expensive and can be restrictive. I prefer investment trusts [4], and got my extra exposure via the Polar Capital Technology trust. Beware: It’s up about 80% since then!
Technology ETFs and index trackers
There are no technology ETFs issued by iShares, my preferred UK ETF provider (yet it finds room for water, timber and Shari-ah ETFs!) Legal & General provides an index tracking fund following a basket of 100 technology shares, though with charges of 1% a year, it’s expensive for a passive vehicle.
Track the Nasdaq
This is probably the easiest way for a private investor to ‘bolt-on’ extra technology exposure if you’re comfortable buying a US-based ETF. (If you know of a UK-listed Nasdaq tracking ETF, please let us know below).
Note: Technology investments are very exposed to the dollar, which will add currency risk [5] to your portfolio. (That is, your technology investment may go up or down depending on the value of the dollar).
How much extra should you invest in technology? That’s the $37 billion question!
Personally, I put just 2% of so of my equity allocation into the Polar Capital Trust, which I intend to hold until the next ridiculous bubble for the long-term.
(Image by: Plutor [6]