According to one of Europe’s most well-known fund managers, it is difficult to value, but it is unlikely to collapse.
Terry Smith, who was named the Englishman Warren Buffett because of his investment approach, wrote a letter to investors asking if companies like Facebook should be considered a communications service or technology company.
The largest investment of the £ 23 billion Fundsmith Equity Fund is the technical sector, which accounts for 28.9%. For the year, the five best contributors to the fund’s performance were: PayPal PYPL,
+ 5.1%, IDEXX IDXX,
+ 3.1%, Microsoft MSFT,
+ 2.8%, Intuit INTU,
+ 1.5%, and Facebook FB,
+ 1.4%.
The bottom five were: Amadeus AMS,
-1.1%, Salie SAGE,
-0.6%, InterContinental Hotels IHG,
-0.6%, Becton Dickinson BDX,
-0.4%, and Philip Morris PM,
-0.2%.
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Smith wrote: ‘Some commenters have attributed our recent performance to the performance of technology stocks, coupled with warnings that a’ bubble ‘is building up in technology stocks rather than the Dotcom Bubble and that it could burst with similar adverse effects.
However, the valuation differs for companies with intangible assets.
‘The return on intangible assets is higher, as it must mostly be financed with equity and not with debt and must receive an appropriate return. Lenders seem to desire the often false security of loans against tangible securities. Intangible assets can also remain indefinite if they are well maintained through advertising, marketing, innovation and product development and the duration of an asset is an important factor in figuring out its real return. ”
Smith, who is the founder and CEO of Fundsmith, wrote “What do the following companies have in common?” with reference to Amadeus, ADP for automated data processing,
Facebook, Intuit, Microsoft, PayPal, Sage and Visa V,
“They are all owned by our fund and are all branded as technology companies,” he wrote. ‘Yet it extends to airline booking systems; wage processing; social media, digital advertising and communication; accounting and tax software; operating systems, distributed computers (the ‘cloud’), software development tools, business applications and video gaming; and payment processing.
‘I would like to suggest that the secular drivers of these businesses have some clear differences and that their prospects are not controlled by a single factor – technology. This one-time label does not help much in evaluating it. ”
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He is estimated to be worth £ 300 million ($ 411 million). Smith established his reputation with Barclays de Zoete Wedd and UBS Phillips & Drew and became CEO of Collins Stewart, who became interdealer broker Tullett Prebon before divorcing again.