YOUR PORTFOLIO
/ UK VS US /
A SHORT
CIRCUIT
For investors
looking for
diversified
technology
exposure in
the public
markets,
the only real
option is to
look overseas
For all the talk about Silicon
Roundabout, the truth is the
UK can’t compete with the
US when it comes to tech
investment opportunities
T
HE UK HAS
HISTORICALLY BEEN
SEEN AS A BARREN
LANDSCAPE FOR
TECHNOLOGY
COMPANIES. High-profile listed
names are thin on the ground and
many of those that have stuck their
head above the parapet have been
quickly snapped up by foreign rivals
– ARM Holdings’ acquisition by
Japan’s Softbank being the latest
example. Investors have had no
choice but to look overseas.
Partly through government
initiatives and partly through
organic development, this is
progressively changing. Silicon
Roundabout, on the fringes of the
City, has become a hub for start-up
technology companies and there
have been burgeoning partnerships
with academic institutions such as
Imperial College.
A FERTILE HUB
Figures from the Mayor of London’s
office at the start of this year
showed that inward investment
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into London’s technology sector
has grown rapidly: it attracted
$2.28bn in funding in 2015, 69 per
cent higher than the $1.3bn raised
in 2014. The sector is supported by
corporate giants such as McKinsey
& Co, Google and Facebook. There is
a similarly fertile hub in Cambridge
and in the M4 Corridor.
While this is encouraging for
early stage investors, it has yet to
make an impact on the public
markets. There is innovation
here but of a different kind, in
the shape of companies such as
Rightmove, AO.com and ASOS.
“Pure” technology firms still make
relatively little impact on the
major indices – the FTSE All Share
currently has just a 2 per cent
weighting to technology companies,
a figure that only rises to 3.3 per
cent for the FTSE Small Cap.
For investors looking for
diversified technology exposure
in the public markets, the only
real option is to look overseas. Ian
Tabberer, an investment manager
in the global equities team at
Henderson, points to research
from Carlota Perez a professor at
the London School of Economics,
which suggests certain platforms
will win out over all others.
“This ‘winner takes all’ initiative
is demonstrated in groups such as
Facebook and Google gathering
85 per cent of mobile advertising,
while other groups, such as
Twitter, are struggling to generate
momentum,” said Tabbarer.
“Businesses make use of
their network to build a better
platform. Facebook is moving
from a social networking site to a
communications and payments
tool and beyond.” This dominance
is also seeing plenty of companies
left behind. “We look at Rocket
Internet, which has struggled since
its IPO because its business can’t
develop enough scale,” Tabbarer
added.
DOMINANCE
The dominance of these hubs means
it is limiting for investors to confine
themselves to one region, even if
that region is the US. Although
the world’s largest economy is still
dominant, there is also considerable
innovation emerging from Asia.
Tabbarer highlights Tencent, which
is building a stronger regional hub
through initiatives such as WeChat.
Hazel Moore, chairman at First
Capital, says that investors should
ensure they look beyond GAFA
(Google, Apple, Facebook and
Amazon) to BAT (Baidu, Alibaba
and Tencent). She adds: “Perhaps
not very many people know
that Baidu hired Andrew Ng, the
artificial intelligence expert behind
the Google Brain project, in 2014,
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