How will the year 2017 be remembered? For many, it was the year of Brexit and Trump; for investors, it was, undoubtedly, the year of technology. As a testament to the “disruptive power” of technology stocks, the NASDAQ index tracking US technology companies led major indices in 2017 with a near 30% gain. But is investing in technology worth a longer attention span than a single year? Paul Wick, Portfolio Manager at Columbia Threadneedle Investments, believes it is. Taking home this year’s House Award in the Technology Equity Sector, Columbia Threadneedle Investments demonstrated how rigorous bottom-up analysis is key to picking winners in the technology industry, in 2017 and beyond.
BENCHMARK (BM): Technology stocks have been gaining prominence in the recent stock market surge. What do you look for in a company to be included in your portfolio? And how do you make sure your portfolio’s constituent stocks meet your stock selection criteria?
Paul Wick (PW): We manage a concentrated and conviction-weighted portfolio consisting of technology companies of which our team of analysts has a high degree of proprietary insight, gained through deep fundamental research and industry knowledge. We seek to invest in profitable companies with attractive valuations and sustainable growth potential, thereby achieving long-term capital appreciation.
BM: Technology-themed offerings are plentiful in the marketplace. What is your edge over your counterparts? And after the remarkable tech rally in 2017, how do you uncover undervalued tech stocks in the current market?
PW: Our 11-member team has an average of over 21 years of industry experience, making us one of the largest and most experienced teams managing technology assets. We seek to invest in misunderstood and under covered companies and are sometimes referred to as contrarian in nature, as we want to have an early mover advantage before an idea becomes a consensus among other investors.
We like companies that possess intellectual property which are difficult to displace, as these types of companies tend to be sustainable franchises. We attempt to anticipate the future impact of technological changes and then identify both the beneficiaries of those changes and those adversely affected. We are keenly aware of valuation and like to invest in companies where the reward-to-risk ratio is in our favor.
BM: As a long-term investor in the technology space, what drives your optimism in the long-term prospect of the sector? Do you think the investment themes in this sector are sustainable?
PW: Many of the themes that we are excited about are on the ascendant trend: the rising electronics content in autos; cloud data center build-out; the rising capital intensity in the chip industry and the declining chip industry cyclicality; growing importance in cyber-security in response to state-sponsored espionage and criminal activities; the rise of artificial intelligence; the continued growth of online advertising and e-commerce; and the movement of software from on premises to the cloud. My team and I view these themes as key trends underpinning the health of the technology industry, and many of our investments are directly tied to them.
BM: Do you think the up-cycle in tech stocks can last? If so, what kind of tailwinds should investors expect going forward?
PW: While it is true that we are in the ninth year of a market upturn in equities, we are still sanguine about the outlook for technology stocks. Global economic growth is healthy, US corporations are benefiting from lower tax rates and access to past and future offshore cash flows. Furthermore, there are numerous positive technological and economic trends providing further ballast for the sector. Therefore, we believe that the big picture remains optimistic for the global technology industry. BM