With the deadline for ISA applications falling at midnight Thursday 5 April, many investors are still trying to decide whether to invest some, or even all, of their £7,000 individual savings account (ISA) allowance in the technology sector. According to market experts, doing so probably won't help them sleep at night, but could prove to be a nice little earner in the long term.
A little over a year ago, the FTSE100 Index was booming on the back of big gains in technology and dot-com stocks, and many investors decided to place their money in the tech sector. Since then, the TMT (technology, media and telecoms) sector has taken a battering, leaving many potential ISA buyers reluctant to risk money in this area of the market again.
However, some financial advisors would encourage investors to take a long-term view, and treat the low market valuations of many tech stocks as an opportunity. "A year ago, we were steering people away from the tech sector because we thought it was overvalued. This year is a good time to consider it, if your portfolio is light on technology stocks," explained Jason Hollands, managing director of Best Investments, a financial advisory firm.
In the last two years, technology-based ISAs have been the most popular of all the different flavours. However, anyone who put £7,000 into Gartmore's tech ISA -- the most popular of all -- this time last year will be showing a loss of over £2,000.
According to Hollands, the unpredictable nature of tech stocks makes them unsuitable for someone new to ISAs. "I wouldn't recommend a tech ISA to anyone looking for their first ISA. However, I think it's perfectly reasonable to include some technology stocks as part of an ISA, to add a bit of spice to your portfolio."
Hollands is taking this line with his own investments. Most of his £7,000 ISA allowance will be split between investments in European and UK companies, with only £1,000 placed in a "techtrader" policy.
Hollands points out that almost all types of ISAs -- whether they invest in small UK companies, or the big fish of the FTSE100 Index -- involve some investment in technology stocks. "Your choice of ISA should be driven by your current investments. If you're underweight in tech stocks, now could be a good time to consider increasing that exposure."
However, other experts worry that the technology sector is just too unstable to justify investing your hard-earned cash. "The short answer is no," said Dru Edmonstone, head of corporate funding at Durlacher and editor of the Durlacher AIM Bulletin, when asked if he'd recommend investing in a tech ISA before Thursday's deadline. He points out that tech stocks have been going through further turmoil this week, with shares in established high-tech companies such as Marconi falling sharply. "Don't believe that the worst is over," Edmonstone warns.
However, Edmonstone acknowledges that some investors could still be tempted by the prospect of big gains from high-tech stocks, if they felt they could cope with losing some of their money. "You would need nerves of steel, and a very adult approach to risk. From this point, you could still lose 25 percent or more in the value of your tech ISA," he said. "However, the technology sector will not go away, and there is likely to be huge company consolidation, which would benefit the value of a tech ISA."
Most people invest in ISAs with a view to growth in the long term. Holland believes that, although technology stocks could be volatile for a while, their future is positive. "The basic philosophy behind investing is to buy cheap and sell high," Hollands points out. "I think we're nearing a stage where the sector can't really go much lower. The five year view looks quite attractive, even if we see a further shortfall in the next quarter."
Investors who are worried that they might place money in stocks whose value promptly plunges should consider a technique known as "drip-feeding". Rather than investing all their money on one day, drip-feeding lets you split it into small tranches that are invested over six months -- thus ironing out some market variability.
However, if you want to put your faith in the tech sector, you'd better move fast as the deadline for ISA applications on 5 April is your final chance to get your hands on one this financial year.
It's possible to apply up until midnight by visiting Inter-Alliance's Web site, www.inter-alliance.co.uk, which offers ISAs from Gartmore, Britannic, Royal & SunAlliance, Investec Jupiter and Legal & General. Aberdeen Unit Trust Management will accept telephone applications until 8pm and online applications until 11.30pm, while both Alliance and Leicester and Abbey National will be keeping high street offices open late on the 5th.
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