Technology stocks are hard to value but are unlikely to fall, according to one of Europe ‘s best – known asset managers.
Terry Smith, nicknamed Warren Buffett, an Englishman, wrote a letter to investors questioning whether companies such as Facebook should be considered a communications service or a technology company.
The largest investment of the £ 23 billion Fundsmith Finance Fund is the technology sector which accounts for 28.9%. For the year, the top five contributors to the fund’s performance were: PayPal PYPL,
+ 5.1%, IDEXX IDXX,
+ 3.1%, Microsoft MSFT,
+ 2.8%, Intuit INTU,
+ 1.5%, and Facebook FB,
+ 1.4%.
The bottom five were: Amadeus AMS,
-1.1%, Sage SAGE,
-0.6%, InterContinental IHG Hotels,
-0.6%, Becton Dickinson BDX,
-0.4%, and Philip Morris PM,
-0.2%.
Read: This is the case for Elon Musk, Warren Buffett and the rest of the American billionaire sending $ 3,000 incentive reviews to everyone
Smith wrote: “Some commentators have dismissed our recent improvement in technology stock performance in the wake of warnings that ‘bubbles’ are building up in technology stocks similar to the Dotcom Bubble and could explode with similar side effects. ”
The valuation, however, is different for companies with intangible assets.
“The return on intangible assets is higher because they usually need to be funded with equity and not debt and attract a decent return. Lenders often seem to get caught up in fraudulent loan security against tight alignment. Intangible assets can survive indefinitely if well maintained with advertising, marketing, innovation and product development and the length of an asset is an important factor in determining the real results. ”
Smith, founder and chief executive of Fundsmith, wrote, “What do the following companies have in common? ”Announces Amadeus, ADP Automated Data Processing,
Facebook, Intuit, Microsoft, PayPal, Sage and Visa V,
“They are all owned by our assets and are all referred to as technology companies,” he wrote. “But they override airline reserved systems; payment processing; social media, digital advertising and communications; accounting and taxation software; operating systems, distributed computing (the ‘cloud’), software development tools, business applications and video conferencing; and payment processing.
“I would say that the global drivers of these industries have distinct differences and their expectations are not governed by a single factor – technology. This one-size-fits-all label will not help in evaluating them. ”
Read: China manufacturing data, Buffett’s new commitments in Japanese companies are strengthening Asian markets
Estimated at £ 300 million ($ 411 million), Smith established his reputation at Barclays de Zoete Wedd and UBS Phillips & Drew, becoming chief executive of Collins Stewart, who became the trading broker Tullett Prebon before parting again.