Walter Price, manager of the £97m RCM Technology trust, predicts Facebook’s share price will be up at $30 within a year. The manager recently bought a 2-3 per cent holding in the company. Shares are currently at about $20.
“Facebook is being successful with its model. The mobile application has a chance of being an efficient way to communicate with people on Facebook by advertisers. People tend to respond to Facebook feeds at a higher rate than if they had to go to a companies product page.
“There are a billion people on Facebook. It is powerful. It is a way to reach people that no-one else can do. The key is to keep the site useful and relevant to users, but while proving to people that it is a viable enterprise.”
Meanwhile Price has sold out of PC positions on the view sales in the sector are “particularly weak”.
“We don’t have any Intel, Dell, Hewlett-Packard and we recently sold out of Microsoft, which was 5 per cent of the portfolio,” he says. “PCs have suffered from the fact consumer spending is under pressure and people are extending the life of their PC.”
He adds: “We are now seeing a major transformation in technology. Companies selling into the traditional PC market are having difficulty growing, and cloud computing is growing rapidly.
“Cloud computing is a better solution to purchasing software on company processors. Companies are realising there is a transition and new spending is going to the cloud. Companies like IBM, HP and Dell are all struggling while cloud companies are growing 30 per cent or more. With cloud computing the vendor can quickly update the software for you, while we are talking three or four years to incorporate innovative concepts with PCs.”
The cloud computing theme comprises 20 to 30 per cent of the portfolio, and has benefitted the fund this year, Price says.
“Year-to-date our cloud computing holdings have been particularly good, especially in the last three months. NetSuite has been appreciating rapidly recently and for the past year. NetSuite and Salesforce.com are the number one and number two in cloud computing, and we hold over 3 per cent in each.”
Over the year to 1 November the trust fell 1.11 per cent versus the 2.34 per cent rise in the AIC TMT sector, according to Morningstar.
The trust, which aims to achieve long-term capital growth by investing in technology companies globally, takes a bottom-up approach, building positions in different sub sectors without reference to an index. There are 62 holdings in the fund and the annual turnover tends to be bewtween 100-150 per cent as Price “trades around positions”. Price reckons mid and large caps have higher growth prospects with the potential for good appreciation.
“Our philosophy has a chance of positive performance,” he says. “We are not index based therefore we cap positions at 10 per cent. Many companies might have 10 to 20 per cent in Apple, which works fine when apple is doing better than the other stocks, but over time having 10 or 20 ‘Apples’ in the portfolio means we will see better appreciation over a longer period of time.
“We are still positive on Apple for the next six months. LTE (Long Term Evolution) is positive for Apple and the iPhone 5 is much faster phone so people will continue to upgrade. However the Mini iPad is just the company responding to Amazon; it will not be a big earnings contributor.”
Price adds: “Our performance has been worse than the index over the past year as Apple has done well, but the benchmark companies are struggling so we don’t own a lot of the top 10 companies in the benchmark.”
Recent additions to the portfolio include Workday, a cloud-based HR and finance software firm.
“We recently purchased Workday. It was a little expensive but it’s a great long-term holding.
The companies which are successful are focused on new apps, using the cloud to service more efficiently – the things other companies are not doing. Workday is doing things better and cheaper as it is using the cloud. It updates its software with all new features as well. Workday has done the human capital management side, and now it is moving into the core software business of other companies, for example financials. 10 years from now everybody will be running on software as a service, rather than through a main IT department.”