Fund manager sees high growth opportunities in technology sector

Date: Friday, May 21, 2010
Author: Investment Executive

The North American technology sector is experiencing a cyclical recovery as firms ramp up spending on technological infrastructure, and this is creating attractive investment opportunities, according to Ian Ainsworth, senior vice president of investments at Mackenzie Financial and fund manager of the Mackenzie Universal Technology Class.

After a long period of underinvestment in technology in the years after the tech bubble, Ainsworth says firms are finally allocating more of their spending to technology.

“You have a lot of infrastructure in the tech world needs upgrading,” he says. “With confidence returning, now we’re starting to see the real uptick.”

For example, Ainsworth noted that the infrastructure supporting the wireless data realm is inadequate given the rapid growth that this area is experiencing. To keep up with this robust growth, internet carriers are investing in new high speed routers, optical technologies and other infrastructure, which will bolster business for technology firms.

“This is an interesting opportunity, and it’s an opportunity that could go on for a few years,” Ainsworth says.

Technology firms are also benefiting from continued innovation in the realm of smart phones, net books and tablet computers.

“All of these opportunities are very high growth opportunities within the overall tech market,” he says.

Another reason that Ainsworth is currently bullish on North American technology firms is their strong export potential to emerging markets such as China.

Leading edge technologies, he says, represent “one of the few areas where we’re not facing severe Chinese competition.” In fact, Ainsworth notes that some of the major technology firms in Asia, such as Taiwan-based mobile device provider HTC, rely on American firms for the highly sophisticated technology that they produce.

“There’s export potential for this technology,” he says.

A benefit of investing in technology is the sector’s relative resistance to economic conditions. This became apparent during the financial crisis, Ainsworth says, as many technology firms continued to experience growth despite the sharp downturn that hit most other sectors of the economy.

“The companies that came out on top were companies that could grow despite what was going on in the rest of the economy,” he says.

“The benefit of buying good quality growth stocks is that they can grow through difficult times, and they will provide you with a good return over the long term.”

He points to Apple Inc. as an example, which saw its stock climb in price during the crisis, unlike many stocks that have yet to return to their pre-crisis levels.

“Apple didn’t miss a beat during the crisis,” Ainsworth says. “Their growth slowed marginally, but they still grew.”

Apple represents the second largest holding in the Mackenzie Universal Technology Class, at 4.3% of the portfolio. The top holding, at 5% of the portfolio, is F5 Networks Inc., a U.S. application delivery firm which faces very little competition, according to Ainsworth.

Among Canadian firms, Research in Motion Ltd. represents the only major holding in the fund, at 3.6% of the portfolio. Other Canadian firms showing strong potential, according to Ainsworth, include Ottawa-based mobile personalization company Bridgewater Systems Corp., and Concord, Ont.-based communications equipment company RuggedCom Inc.