Ian Warmerdam, manager of the Henderson Global Technology Fund (HFGAX), says they're attractive investments because industries like e-commerce, data storage and network equipment are thriving in an economy that's barely growing.
Warmerdam says companies' large capital budgets are supporting spending on technology even as Americans, whose purchases of consumer goods make up the bulk of the economy, get tight-fisted.Henderson Global Investors has about $120 billion in assets and 17 offices worldwide. Based in Edinburgh, Scotland, Warmerdam manages the successful $305 million Henderson Global Technology Fund. The tech-centric fund, started a decade ago less than two weeks before the 9/11 terrorist attacks, has thrived amid the tech bubble's unwinding, two severe recessions and major new trends in technology. It's the only tech fund to have outperformed both the MSCI All-Country World IT Index and the Morningstar specialty-technology category every calendar year since inception, with an average excess return of 6.1% over its benchmark. Not every investor is as excited about the tech sector as Warmerdam is. Technology was the best-performing sector of the S&P 500 last week as the broad market index pieced together a five-day winning streak. For the year, though, information-technology stocks are down 1%, trailing defensive sectors like utilities (up 7% in 2011) and consumer staples (up 4.7%). Warmerdam says sentiment toward the technology sector continues to be hurt by the wealth that was lost in the Internet bubble in 2000. "Frankly, the sector is completely different now, particularly in terms of valuation," Warmerdam says, noting that price-to-earnings ratios have fallen from an average of 50 times forward earnings in 2000 to the current market average of 11 or 12 times, in line with the broader market. "There are much more attractive valuations on an absolute basis." The fact that the broad tech sector now trading in line with the market indicates an attractive opportunity, Warmerdam says, even with macro headlines like European debt concerns and weakening economic data spooking investors. In addition, the 2008 stock-market crash showed that tech stocks are resilient. "There is a lot more recurring revenue from companies, and tech companies are managed much more conservatively than in the past," he says. "What speaks to the conservatism is that tech is the only sector of the S&P 500 with positive net cash on the balance sheets." Warmerdam offers four stocks in his fund's portfolio that some investors may be wrongly dismissing. TheStreet details those picks on the following pages.