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Continuing our ‘Insider at 25 Years’…
Tom Prestwood, an associate director at Evelyn Partners takes a look at a potentially overlooked investment opportunity, that is the UK tech sector.
Over the last decade, technology companies have been considered a strong generator of investment returns. Especially as ultra-low interest rates in the wake of the global financial crisis created an incubator for innovative companies to access cheap capital and fund rapid growth.
Investors in the US NASDAQ, (a barometer for global tech companies), would have returned 597%* in the decade preceding its peak in November 2021 compared to 91%* for MSCI UK.
This outperformance of US tech stocks ended last year during the backdrop of rising inflation. Central banks began aggressively hiking interest rates to combat inflation, which was brought on from supply chain disruptions, reduced labour supply and rocketing energy prices in the wake of Russia’s invasion of Ukraine.
Since then, the US NASDAQ has fallen 26%** as investors rushed from high-growth technology stocks into established, old-economy sectors, that typically return high levels of cash to shareholders. This shift in sentiment is broadly beneficial for the UK market, which has risen 11%** during the same period, due to its high exposure to energy, mining and financials – these sectors prospered in this inflationary environment and provided a haven for international investors.
Despite this, the UK market continues to trade at a 37% discount*** to its global peers which may well present an opportunity for the value-focused global investor to invest in high-quality British companies with global operations.
But what about the UK-tech sector?
Our domestic market has been berated for its small technology industry and subsequent lack of international-technology giants that dominate the sector. However, many investors do not realise that the UK market has many small and exciting tech companies that have generated elevated levels of growth over the years.
The recent collapse of Silicon Valley Bank (SVB) in the US including its UK operations, which provided essential banking services for some of the UK’s most exciting tech start-ups, jeopardised this growth. The takeover of SVB UK by HSBC has helped shore up confidence in the sector and has prompted a rally in equity markets, ensuring that the UK continues to compete in the areas of fintech, life sciences, healthcare, and robotics.
Investing in smaller tech companies could potentially be a lucrative opportunity for those looking to diversify their investment portfolio. With a supportive ecosystem and a thriving technology sector, there are numerous start-ups and small businesses in the UK that are at the forefront of innovation – including some very promising firms that call Yorkshire their home.
Smaller companies shares can be more volatile and less liquid than larger company shares, so smaller companies funds can carry more risk.
The value of an investment may go down as well as up and you may get back less than you originally invested.
Past performance is not a guide to future performance.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing
*Data from FEfundinfo2023
**Data from FEfundinfo2023 period from 19/11/2021 – 28/03/2023
*** Refinitiv Datastream/Evelyn Partners, Data as at 03 April 2023
Evelyn Partners Investment Management Services Limited is authorised and regulated by the Financial Conduct Authority
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Evelyn Partners LLP
Tom is a Chartered Member of the Chartered Institute for securities and Investment and has completed the CISI Masters in Wealth Management. Tom graduated in 2014 from the University of Bradford with a degree in Economics and started his career as a Corporate Actions Analyst before joining Evelyn Partners in 2016. He now works as an Investment Manager within the Bespoke Investment Management team – managing assets for private & corporate clients, personal injury trusts and pension schemes.
Associate Director, Investment Management,
0113 224 5529
T: 0161 907 9711
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