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Macro view on technology pays off for Montgomery Oppenheim Back  
A fundamental view taken on the role of technology in the global economy taken in 1994 enabled Montgomery Oppenheim to deliver leading returns over the period, the company claimed at its investment conference in June. Founder Paul Montgomery said that the risk in technology investing was not the downside volatility, but 'the risk of not participating in the upside performance.’

Brian Gray, investment director, argued that the earnings growth is driving the technology sector’s increasing importance in global market indices. Like other professional investors, he highlighted companies which produced enabling technologies in the TMT (technology, media and telecommuncations) sector.

A theme which Montgomery and Gray emphsised was that markets have moved from a consumer cycle to a capital goods cycle, the latter including major outlays for technology infrastructure.

Gray told the conference, ‘Technology is rapidly becoming the dominant force behind the resurgence of leadership within the capital goods sector. This is because 1) it is the single largest component within the broad capital goods sector, accounting for almost 75 per cent of total sector capitalisation, and 2) the emergence of ‘New Technology’ themes are increasingly impacting all parts of the capital goods market - in manufacturing, procurement and in product distribution.’

Introducing the speakers, Paul Montogomery said, ‘The dividend discount model was relevant to the capital intensive ICI’s and Dow Chemicals of the 1950’s and 1960’s, but failed with the consumer growth stocks of the 1970’ and 1980’s. The lesson to be learnt was that those that stuck rigidly to the old valuation model (and they did well into the 80’s) missed the new generation of stocks.’

‘It would be easier to stay with models of the past, to be satisfied by the historic consensus - but by doing that you are guaranteeing that you are investing behind the curve.’

At the centre of the argument about the sustainability of the new economy was a rise in productivity, he said, ‘and central to the emerging productivity trend is rising corporate expenditure on new technology’.

Gray predicted that technology would continue to generate earnings growth superior to other sectors, as would companies that ‘aggressively embrace technology in their business’. A balanced portfolio technology should continue to be at least fully weighted in technology, he said.

Montgomery Oppenheim’s technology fund has achieved a 64 per cent annualised return over five years. Its value increased by 33 per cent in the first quarter of 2000, despite what the company calls ‘turbulent conditions’. The outturn for the next quarter is looked forward to with considerable anticipation.

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