Interactive Investor

Ian Cowie: why boring can be beautiful, even when investing in tech

Our columnist explains that for one sector outsourcing the decision-making to a fund manager generated a return higher than that from his individual holdings.

9th May 2024 09:09

by Ian Cowie from interactive investor

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It is easy to imagine that direct investment in exciting new technology shares must produce bigger profits than backing boring old pooled funds, which provide professionally managed and diversified exposure to this sector. But that is not necessarily the case, as this long-term DIY investor has just discovered.

Two of my most valuable direct shareholdings, which are both among the biggest technology businesses on this planet, have been soundly beaten over the last momentous year by a global tech investment trust where I have been a shareholder for more than a decade. Even the most enthusiastic amateur investor should fess up when the professionals do best, so here goes.

At the time of writing, the relative returns are such that Cowie’s top 10 blue-chips did OK with 6% and 34% respectively over the last year. Meanwhile, my longstanding shares in the global tech investment trust have soared 53% higher.

If only all my equity assets - direct or indirect - could be so boring. What brought all this to mind was news that Warren Buffett, one of the most successful investors in the world, has sold about 13% of his stake in the technology giant Apple Inc (NASDAQ:AAPL).

The maker of the MacBook Air, upon which I am writing this now, will always be close to my wallet after I invested in AAPL back in February 2016, at $23.75 per share, as reported elsewhere at that time, allowing for a subsequent four-for-one stock split. Since then, they have soared to trade at $182 this week and become my most valuable stock market asset, worth a six-figure sum and - allowing for indirect exposure via investment trusts - slightly more than 8% of my life savings.

So, I would have to be an ungrateful maggot to grumble about Apple. Even so, it was worrying to hear last week that Uncle Warren, the Sage of Omaha and co-founder of the conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B), has reduced its stake in the iPhone-maker.

On the other hand, this might simply mean that he is keen to turn paper profits into real ones by selling some of the Apple shares he first reported buying in mid-2016.

Berkshire Hathaway’s ongoing stake was still worth $135.4 billion as at the end of March, so it is absurd to suggest - as some commentators do - that he is bailing out of this blue chip.

Buffett and Berkshire Hathaway also have potentially large and unpredictable cash calls, in the form of claims that must be paid by their insurance business, to take into account. Such considerations need not trouble the asset allocation strategies of smaller investors, such as you or me.

Even so, with all the hype about the Magnificent Seven technology shares - Alphabet Inc Class A (NASDAQ:GOOGL), Inc (NASDAQ:AMZN), Apple, Meta Platforms Inc Class A (NASDAQ:META), NVIDIA Corp (NASDAQ:NVDA), Microsoft Corp (NASDAQ:MSFT) and Tesla Inc (NASDAQ:TSLA) - I am aware that last year was a fairly fallow one in the Apple orchard. A total return over the past year of 6% looks like pretty weak cider compared to the super-strong scrumpy of Nvidia’s 210% gain.

Yes, really, I needed to double-check that one, too. Facebook owner Meta also provided investors with plenty to like with a total return of 100% over the same period.

Fortunately for me, I also invested 2% of my life savings in Microsoft in January last year, when I paid $241 and then $233 per share, as reported elsewhere at that time. These shares trade at $414 this week and are now the 10th-most valuable holding among the 50-odd shares in my forever fund on the back of Microsoft delivering total returns of 34% over the last year.

Even in the go-go, shoot-the-lights-out phase of a mature bull market, I am not going to complain about 34% growth in 12 months. Just because the market seems to be going mad about artificial intelligence (AI) does not mean we have to lapse into genuine stupidity, when it might be more considerate to spare a thought for folk who don’t have any exposure to AI or new technology. Where have they been this century?

Even more fortunately for me, I have been a small shareholder in the £4 billion global investment trust Polar Capital Technology Ord (LSE:PCT) for more than a decade. They were priced at 433p each in September 2013, when I transferred them from a paper-based broker, as also reported elsewhere at that time.

Today, those same Polar Capital Technology shares would cost you 3,005p each, having soared by an eye-stretching 53% over the last year. The explanation is, of course, that its most valuable underlying holding is Nvidia, followed by Microsoft, Meta Platforms and Apple, with Alphabet and Amazon also featuring in its top 10 assets.

It all goes to show that professionally managed diversification can increase returns, as well as reducing risks. Some years, direct investment will beat indirect investment - and, in other years, it will be the other way around.

That’s why a balanced portfolio of different assets should contain both. Put another way, sometimes boring can be beautiful.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), Microsoft (MSFT) and Polar Capital Technology (PCT) as part of a globally diversified portfolio of investment trusts and other shares.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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