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Fund of the Fortnight: Herald Investment Trust

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Every fortnight our research experts highlight a fund from their top-rated list.
Fund of the Fortnight: Herald Investment Trust

The lastest: Herald Investment Trust

Technology investing has come on a long way since the tech bubble and subsequent crash of the late 1990s. Apple is now the world’s largest company by market value, whilst Microsoft and Intel supply the software and chips for the PCs and laptops used in offices and homes around the world. Even the less familiar names in the technology index are part of our everyday lives – chipmaker Qualcomm supplies the innards of many of our mobile phones, whilst Cisco provides the routers and switches that are the plumbing of the internet.

All told technology companies now make up around 12% of global stockmarkets. One downside of the sector’s maturity is that these companies, and the funds that invest in them, are likely to experience slower growth going forward. However, there are still funds that specialise in the smaller, nimbler, faster growing companies in the sector. One such fund is Herald Investment Trust.

The trust has been run since launch in 1994 by Katie Potts, managing director of Herald Investment Management. She was previously a top rated city electronics analyst. Based in London, she is supported by a team of six analysts and three consultants.

The trust specialises in smaller technology companies, below £1bn in size. Smaller companies and tech stocks can of course be risky, but Potts mitigates this through a highly diversified portfolio with around 250 holdings. Conversely, gains on its successful stocks can be spectacular, particularly as smaller tech companies are often takeover targets for the industry’s giants.

The trust invests globally, but has a longstanding overweight to UK companies – these currently make up around 65% of the portfolio. This reflects more attractive valuations in the UK rather than favouritism towards the trust’s home market.

The bulk of the rest of the portfolio is in the US, which continues to dominate the technology industry. There is also some exposure to Asia and Europe and the size of Potts’ team helps her maintain coverage of the sector across the globe.

One of the trust’s longstanding holdings is Imagination Technologies, a UK-based designer of graphics chips used in smartphones including the iPhone. Potts originally bought into the company in 2002, and though it has stumbled lately is has still generated stellar returns over the long term and features in the FTSE 250 index. Herald is in good company on the shareholder register – other major holders in the company include Apple and Intel.

The fund’s specialist investment universe and unique geographic exposure means there is no single appropriate benchmark. However, performance has been outstanding against both small cap benchmarks and technology indices. An added attraction is the discount – the trust currently trades at around 14% below its net asset value.

Technology companies like Apple have long since entered the mainstream and are a feature of most investors’ portfolios. However, Herald Investment Trust gives investors the opportunity to buy into the Apples of the future.

Tom White is a senior analyst at Bestinvest

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