‘Looking on a stock-by-stock basis, we can agree that investors have pushed some names into bubble territory. However, this only proves that you need to look closely at valuation metrics and take profits on, or avoid names where prices are starting to look stretched or unreasonable,’ notes the Citywire AAA-rated manager.
Underpinning this call is the ability to calculate valuations of technology companies, says Hawtin, who said, ‘Unlike in the late nineties, we can now actually calculate valuations for these technology companies using sensible metrics.’
‘During the bubble, analysts and investors had to invent ever-more imaginative valuation metrics, such as “eyeball counts” or “page view statistics”, because there were no revenues to speak of,’ he added.
IPOs and sentiment muted
If the 1999 tech bubble was characterised by explosive IPO activity, argues Hawtin, then 2013 paints a very different picture.
‘Comparing tech IPOs then (1999) and now (2013) offers some more insights. According to the Wall Street Journal, in the whole of 1999, we saw 368 IPOs compared to just 32 so far this year. In 1999, 114 IPOs doubled in price on the first day of trading; in 2013 this feat was accomplished by exactly one stock,’ he argued.
Hawtin believes the specialisation necessary to value tech companies has led to investors seeking growth in other sectors, saying, ‘‘Technology stocks still need in-depth knowledge and specialist research in order to distinguish the winners from the losers successfully. It seems that the growth-hungry investors generally tend to prefer other areas like consumer goods where growth is more steady and certain, and businesses are easier to understand.’
‘But a significant and well-known drawback of such herd-following is beginning to emerge: a crowded, overvalued market,’ he noted.
Since the start of 2013 to end-November 2013, GAM Star Technology USD Acc has returned 37.32% versus its benchmark MSCI World/Information Technology TR return of 24% in USD terms.