|Summary: Technology stocks were hammered overnight in the US. Some investors clearly see IT stocks as overvalued, but Platinum fund manager Alex Barbi sees opportunity.|
|Key take-out: Beyond the US tech heavyweights, big Chinese internet companies that have US-based ADR listings are attracting investment interest.|
|Key beneficiaries: General investors. Category: Shares.|
Eureka Report supports investors who make their own investment decisions, but occasionally there are situations where retail investors simply cannot have the expertise or connections to confidently buy stocks and fund managers can clearly add value.
In the coming weeks we will be presenting a series of fund manager interviews where the funds offer a clear promise to bring the individual investors into a sector which has natural obstacles for the retail investor. Today we begin the series with Alex Barbi, the fund manager at the Sydney-based Platinum International Technology Fund.
Italian born Barbi has been a technology stocks analyst for most of his working life. Since 2003 he has been running the $60 million Platinum International Technology Fund, a specialist fund that is very much overshadowed by Platinum’s broader billion dollar international funds. But, in the last year, the tech fund has beaten the pack with a 40% one-year return. The fund has a minimum entry of $20,000 and a management expense ratio of 1.54%. In common with other Platinum funds it has the capacity to short stocks in the portfolio.
James Kirby: Alex, the first question on most people’s minds right now is that technology has been hot for the last two years and in the past few weeks we’ve seen some sharp losses, especially among leading names ... is there another ‘tech wreck’ looming?
Alex Barbi: No, I don’t think we are in that situation we faced in the dot com times. I’ll give you a simple piece of evidence if you go back to the dot com boom, a key company such as Cisco was trading on a P/E of 120 times. Today we have Facebook, one of the most highly prized companies in the sector, trading on 37 times. I think that should put it in perspective.
In fact, we are starting to see some of our favourite stocks coming back towards what I would describe as ‘value’ levels. One other dimension to this is that some of the blue-chips in the technology industry are starting to get new money which I regard as a very positive sign.
JK: OK, the other more abiding question to someone in your position as an active technology fund manager is why shouldn’t I just buy an ETF or an index fund, since your results are pretty close to the MSCI world IT index.
AB: Well, the results are close, that’s true, but you have to look more closely. We have an expert team picking stocks here and one of the things we try to do is to be index unaware. We don’t hold more than around 10% in any one stock, so our performance is on a much healthier diversified basis. If you were to have achieved those numbers on an index basis there is a very heavy weighting towards the US and a number of leading stocks. Look at it this way, I have just 3% in Apple. If you just ran with the index you’d have about 13% in Apple, which is a very high exposure.
JK: You’ve just managed your best year ever with a 40% return ... can you do it again?
AB: I don’t think we will do those numbers again, but I am pretty comfortable saying we should do double-digit returns.
JK: What are your top stocks just now?
AB: My biggest holding is Samsung of South Korea at 4.6%, then Apple at 3%, and our third-biggest holding is actually from Kenya. It’s called Safaricom Ltd, a very successful telecoms company linked with Vodafone that’s also at around 3%.
JK: It would be reasonable to presume you are at a disadvantage working out of Sydney; you can’t possibly meet or know the management at key tech companies?
AB: Well, no we don’t meet them so much but we travel constantly and we have access to some of the world’s best analysts through the GLG group.
JK: What special metrics do you use in picking technology stocks?
AB: Well, we use conventional metrics that any fund manager might use. The difference in this area is that you must often work with companies that don’t have dividends or profits ... or even revenues. If you were to look at the recent Facebook acquisition of WhatsApp to take an extreme example. The issue for Facebook is whether they can turn that enormous traffic into a meaningful business. But that’s the nature of the sector; we’re running this fund since 2000 - I’ve run it for more than a decade, it’s a specialist area
JK: Are there stocks on the radar that you find exciting just now?
AB: The big Chinese internet companies that have US-based ADR listings are very interesting. Just now you see companies with such immense potential - I’m thinking of something like Baidu (China’s answer to Google) or Yoku (A China version of YouTube). I’m also amazed at what they are doing; at a Dutch company called ASML, which has a listing in the US and the Netherlands. They are doing work that suggests an incredible breakthrough in silicon chip technology.
JK: If you’re in the tech sector you’ll have seen some big winners - you’ve got a limit of about 10% on a single stock ... is there one that got away?
AB: Well, we were into Apple in 2010 just after the wash-out in the wake of the ‘flash crash’. It’s been a very good run ... it’s been a fantastic performer, but we did have limits of 3 or 4%, so there was underperformance there!
JK: What do you think of Apple now ... can it keep going at its recent level of performance?
AB: It’s almost a value stock now with massive cash flows - it has very strong engineering and product culture at the company ... but it’s the creativity factor that’s a question mark in this period after Steve Jobs.
JK: Thanks Alex.
This is an edited version of an extended interview with Alex Barbi – the comments published are not financial product recommendations and may not represent the views of Eureka Report. To the extent that it contains general advice it has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.