Herald Investment Trust plc was launched with a smaller companies remit in 1994, and globalised in 1996 with a realisation that you had to understand the US sector to aspire to be expert, and to be able to cross reference investments. By the same token the desire for expertise necessitated an understanding of the dynamics of large companies in the technology, media and telecommunications (TMT) sectors, and having a fund in which to make these investments was desirable. HWF was therefore launched in April 1998. The fund benefited from the ensuing technology bubble, but suffered badly in the subsequent breakdown. However, the fund was well positioned to exploit the rally in 2003, and has continued to perform well.
The TMT sector globally is now cUS$5tr, but under represented in the UK market. The market is essentially global, and managing a global fund has advantages in assessing the global trends and relative valuations, versus the majority of money managers who have a narrower geographic focus.
The sector is not homogeneous, and specialist management ought to outperform any technology index. Innovation leads to replacement cycles, from which the incumbents do not necessarily benefit, and disruptive innovation can lead to the emergence of new markets. This has been the pattern over the last fifty years. The first big market was the mainframe computer, which had its heyday in the 1960s, and IBM came to dominate. The personal computer market emerged in the 1980s, and has led to many globally significant companies- Microsoft, Intel, Western Digital, Seagate, Symantec, McAfee, HP, Dell, Acer, Hon Hai, Adobe – to name but a few. Networking and the roll-out of the corporate local area network was the driver of PC growth in the 1990s, and led to the emergence of Cisco. This century has seen the roll-out of broadband globally with a high consumer penetration, social networking. Google, Facebook, Twitter and Amazon are all now household names. The mobile phone market emerged in parallel with the PC market. The most recent market to open up has been the mobile internet led by Apple. Arguably the iPad and similar e-readers mark the first major disruption in books since the Gutenberg press.
HWF has been established to exploit these opportunities, with focused specialist management.
The large capitalisation remit means that performance diverges from the Herald Investment Trust plc. In particular the fund outperformed Herald Investment Trust plc from the Autumn of 2007 to the end of 2008. This reflected the fact that there was a much greater market breakdown in the smaller companies market, when distressed selling led to savage price declines; secondly a greater percentage of the portfolio was invested in $ denominated investments, the benefits of which were immediately recognised; and thirdly it did not suffer from a widening of the discount. For investors who value the liquidity associated with larger capitalisation investments this vehicle has appeal.
The portfolio has been concentrated in quality companies through the downturn, and we have not attempted to read the market, but to stick to companies in which we believe. The performance has, therefore, been derived from stock selection rather than market timing.