Andrew Newell, head of business development at Cannon Asset Managers, looks at recent equity performance with some surprising results. Is it too late to get into the JSE’s top performing sector?
Heading into the midpoint of the year, we thought it would be interesting to look at which sectors have performed well so far this year and wondered whether there is still performance to come.
You may well know that resources have performed poorly on the back of weak commodity markets and global economic uncertainty, but who would have thought that the top performing sector would have been technology hardware and equipment?
This sector has rewarded investors with a total return 33.9 percent for the year to date. That’s no mean feat, and the result comes into greater focus when compared to a comparable figure of five percent for the FTSE-JSE All Share Index.
This should come as no surprise.
We have been attracted to the information technology sector for some time, although we have cautioned that not all IT companies within the JSE are good investments: some trade on more demanding multiples than others. As a whole, though, the sector has performed well. Indeed, the FTSE-JSE Technology Index has returned almost 54 percent per annum on average over the past three years, against the FTSE-JSE All share Index’s (ALSI) return of 21 percent per annum, over the same time period.
Perhaps the important question is: where will IT counters go from here?
Looking forward, despite the strong performance from the sector already, it remains attractively priced.
However, investors ought to exercise caution, as there are a number of companies within the IT sector which appear to be fully priced.
Naspers is a case in point.
Despite being commonly recognised as a broadcasting or media stock, the majority of the company’s market capitalisation is explained by Chinese-based TenCent, an internet and gaming firm that is being priced euphorically. Certainly, this sector has received a lot of attention recently, the most obvious example being the much anticipated listing of Facebook. What it is also demonstrating to us is that if you overpay for an investment, regardless of how good the story might be, it carries disproportionate risk to investors.
Article continues on page two: two companies within this sector which remain excellent value and great investments...