September 14, 2015

Tech sector a compelling investment case

by Darin Tyson-Chan via

Bailador Investment Management managing partner David Kirk cited the returns of the iShares Global Technology Index and the NASDAQ Internet Index, which delivered earnings of 18.4 per cent and 23.5 per cent respectively over a two-year period, and earnings of 13.1 per cent and 17.9 per cent over four years respectively, as the level of performance justifying investor consideration.

“It shows this is not a short-term phenomenon and that there have been great returns over an extended period of time,” Kirk told financialobserver. “It leads to the natural outcome, which surprised me, that the information technology sector makes up 20 per cent of the S&P 500 index. “It means it’s bigger than financials, bigger than healthcare, and bigger than consumer discretionary. “Also, in the view of the Schwab Center for Financial Research, at 31 July 2015 it was only one of two sectors they had an outperform rating on.”

Kirk, however, acknowledged it was difficult gaining access to the best investment opportunities in the sector as many technology companies were unlisted and carried a high level of risk as they were still in their start-up phase. In recognising these difficulties, Bailador is specifically offering investors a pathway to the sector through the Bailador Technolgy Investments (BTI) LIC.

Further, BTI has sought to mitigate the risks of the sector by investing in companies going through an expansion stage. “Expansion stage means $2 million to $20 million investments into businesses that are proven, have several million dollars worth of revenue and growing,” Kirk said. “It’s a stage where it is virtually impossible for retail investors to access at the moment.

“Expansion stage, we feel, is the sweet spot of risk and return in this sector. “As technology companies progress from inception, they hit a point of inflection where they really start to grow quickly. “It’s also the point where they have blockages in terms of people, expertise and capital, and that’s when we invest.”

Bailador has been investing in the technology sector for five years and has generated returns of 22.7 per cent a year over that period. 

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