DNB Asset Management focusing on alternative high-quality stocks – with success
12 August 2014. The head of the DNB Technology fund Anders Tandberg-Johansen is happy with the company’s positioning in funds this year and with the current valuation level in the technology sector. Above all, the sector’s strong appeal is down to the double-digit profit growth rates at the current price level, with a cash-adjusted P/E ratio of 15, Tandberg-Johansen says. The Nordic investment specialist DNB Asset Management was quicker than others to recognise the overvaluations in the Internet and cloud computing sectors, and thus avoided losses by focusing on alternative high-quality stocks. The outlook is positive, too, because a great many economic activities are driven by technology, resulting in healthy returns on technology stocks, which should further boost what are already strong cash positions.
The global technology sector is developing highly satisfactorily this year. DNB Asset Management was quick to realise that there were some dangerously high valuations in the Internet and cloud computing sectors, and notified its investors accordingly. DNB’s competitors initially posted profits on the basis of their overweighting with individual growth stocks in these two sectors and also in the area of 3D printing, but subsequently suffered heavy losses, while DNB was able to avoid these price losses. “Even at their current levels, the majority of stocks have not yet recovered. The investors are nervous and continue to steer clear of these segments, even though some improved quarterly results have since been published,” says fund manager Anders Tandberg-Johansen, analysing the current reticence in the market for the former high-flyers. According to Tandberg-Johansen, the investors now have higher expectations with regard to the same companies’ profitability.
On the whole, however, the technology sector is doing well, even disregarding the sizeable cash levels, and a great many shares are generating double-digit profits. For example, Google continues to be a prudent investment. The firmly established technology giant is an attractive option for investors and is still in great shape as it has secured market leadership in the majority of mega trends. In addition, Google continues to focus on a keen culture of innovation and on clever technological inventions such as voice recognition.
Weighty technology drivers
There is a rosy outlook for the sector as well, and stocks in the tech sector are generally enjoying very steady development. Company investments in technology continue to rise as the infrastructure deficits that were built up due to the financial crisis continue to be rectified and because new business areas continue to arise in areas such as the health-care sector (applications, portable appliances, smart home) and in retail (customer identification, mobile payment systems). What is more, many business activities such as online portals are driven by technology and are therefore buoying the sector.
With regard to the current developments, DNB firmly believes that it is right to give a high weighting to established stocks like Apple, SAP and Oracle, while stocks such as Amazon are still not recommended for investors. The focus with regard to Apple is on its new product cycle: the new product launch expected in September should move its stocks further into the high-margin segment. ‘This will enable Apple to tap new profit margin potential and will keep it out in front in the price war that is being fired up by Chinese manufacturers in particular,’ says Anders Tandberg-Johansen. SAP is likewise generating good results, he says. In addition, SAP and Oracle stand out due to their high proportions of recurring income and their favourable valuation levels.
Robust outlook
As far as economic development is concerned, DNB does not believe that there are any sector-specific risks, and the outlook for the tech sector remains robust. Possible geostrategic uncertainties like those in Russia, for instance, may affect individual stocks with regard to the awarding of contracts – but are unlikely to affect the sector as a whole. In addition, underweighting sensitive stocks such as telecom stocks would be good preparation in anticipation of possible interest rate hikes.
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