Disclaimer

This article is for general information and educational purposes only. It does not constitute investment advice, a personal recommendation, or a financial promotion within the meaning of the Financial Services and Markets Act 2000

Readers should make their own independent assessment and where appropriate seek advice from an FCA authorised advisor.

Investing in Technology: How the Global Tech Sector Compares to the World’s Largest Economies

Research

This cameo provides an overview of:

• The size of the global technology sector.
• Recent growth (5 year and 1-year perspectives).
• Geographic distribution of activity.
• Major manufacturers, platforms, software, and distributors.

Investment options

• Specialist technology funds and ETF ‘s.
• Tracker and actively managed fund routes.

Sector Research

Market Capitalisation

• The global listed technology sector is estimated at £12-£15 trillion depending on classification boundaries.
• Broadly comparable in size to the entire GDP of China or the USA.
• Within the MSCI World Index*, technology typically represents 20 – 25% of total market capitalisation.* (The MSCI World Index consists of large and mid-cap companies across the twenty-three most developed countries and covers 85% of the free float capital of each country)

Economic Contribution

• Technology is not just a sector but is the foundational layer of the modern global economy.
• Technology contributes an estimated 7 % of global GDP directly, but it’s indirect contribution is much higher.
• Cloud computing, digital payments, and enterprise software have become embedded in almost every industry.

Global Growth Profile

Five-Year Perspective (2020-2025)

• Many large-cap technology firms have delivered annual revenue growth of up to 20%.
• Market cap for leading companies has, in several cases, doubled over this period.

One-Year Perspective (most recent year)

• A renewed surge in AI investment.
• Powerful performance in a narrow group of large-cap firms with a small number of companies accounting for a sizeable portion of sector growth.

Geographic Distribution

United States. Accounts for over 60% of global listed technology market value.

China. The second major centre with a large domestic technology ecosystem.

Taiwan and South Korea. Central to the global semiconductor supply chain.

Europe. Plays a limited role but with strengths in industrial technology, semiconductors, and specialist software.

India and Emerging Markets. India is rapidly developing in software services and digital infrastructure. Other countries contribute through outsourced manufacturing.

Risks and other considerations

From an investment perspective, we need to acknowledge several sector risks.

• Valuation Technology companies typically trade at high valuation multiples and suffer big share price falls if a target is missed
• Concentration A small number of firms dominate the index performance and passive exposure, by ‘buying the index,’ may be less diversified than assumed.
• Technological Obsolescence Rapid innovation can render an existing business model less relevant.
• Regulatory and Political Risks There is increasing scrutiny of large firms. Economic and political tensions can effect sourcing of products and services.

Largest Global Technology Companies

Approximate values based on recent market capitalisation data.

Several points are worth noticing for the investor.

• A handful of firms dominate the sector, market indices, technology funds, and ETFs.
• Critical parts of the hardware and semiconductor supply chains are centred in Asia, particularly Taiwan and South Korea.

Investment options

If we leave to one side investing through individual company shares we have two main options:- specialist technology funds and ETFs.

We covered the key features of funds and ETFs in our Foundation Course in Investing, and we will now look at using these products to invest in global technology.

Specialist Technology Funds

The information below is taken from three of my platform provider’s technology fund listings and their current published research on these funds.

Other platforms may well list alternative tracker and actively managed funds.

The following is therefore an indication of the current potential information available to fund investors in the Technology Sector. You should do your own research before investing.

A Tracker Fund

Legal & General Global Technology Index C Acc

This funds’ investments are mainly in the shares of those companies that make up the FTSE World Technology Index in proportion to each companies size. The fund aims to track this index and therefore has more holdings than an actively managed fund. It also has more invested in US companies.

Key fund data: Launched 2000. Size £4,404 million. Holdings 251. Top countries US 81%, Taiwan 8%, Japan 3%

Performance: 5 Year cumulative +132%, March 25/March 26 +28%.

Two Actively Managed Funds

Actively managed fund managers are free to invest in those countries and companies that they feel will give them the best returns. This is a different brief to tracker fund managers who invest to replicate the appropriate index.

Polar Capital Global Technology 1 GBP Income

Key fund data: Launched 2001. Size $11,833 million. Holdings 66. Top countries US 63%, Taiwan 11%, South Korea 5%.

Performance: 5 Year cumulative +146%, March 25/ March 26 +85%.

CT (Lux) Global Technology ZG GBP Accumulation

Key fund data: Launched 2016. Size $1,165 million. Holdings 66. Top countries US 90%, Japan 3%, Israel 2%.

Performance: 5 Year cumulative +143%, March 25/ March 26 +54%.

From an examination of this limited data, you will readily appreciate the performance difference between a tracker fund and two actively managed funds.

The 5-year returns are broadly similar, but the most recent data shows greater current growth in the actively managed funds. If you look further into how these two actively managed funds invest you will see companies outside the top 8 listed earlier.

These companies may specialise in new areas of technology and, if successful, are target acquisitions for ‘big tech’ organisations.

This is where individual investor risk assessment comes into play. Clearly with a similar 5 year return the tracker fund enjoyed earlier growth and less currently. Nothing is written in stone and geographical and company trends can very as mentioned in the research section.

Specialist ETFs

We covered the characteristics of ETFs in the Foundation Course. As with funds they hold a selection of company shares and the ETFs themselves are traded throughout market hours just like equity.

You will find a range of technology ETFs both trackers and actively managed.

Major providers include Blackrock iShares, Invesco and SPDR products (called Spiders) issued by State Street Global Advisors.

These ETFs invest in companies in the MSCI or the S&P World Technology Indexes. Some of these ETFs are large over $1,000 million and others much smaller.

You will also find specialist technology ETFs which invest in a particular area of technology.