Home-grown tech companies – an investment opportunity?

05 May 2023

3 minute read

We discuss the opportunities posed by British tech firms.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.

The most famous technology brands known to UK households are most likely to be based in the US, such as Amazon, Google, Netflix and Facebook – now known as Meta.

So-called Big Tech suffered a massive sell-off last year with millions wiped off share prices – and the value of investor’s portfolios. The sell-off was prompted by a slowdown in earnings where companies boosted by the pandemic slowed, and economic influences such as higher interest rates and inflation in the US. Many investors still argue that big tech is worth holding in an investment portfolio. But it’s worth remembering there are many more opportunities outside big tech in the US.

In fact, there are many lesser-known technology companies in the UK that are striving to solve some of the biggest challenges facing sectors such as healthcare and finance.

“UK innovation is alive and well,” said Stephen Peters, Portfolio Manager at Barclays. While in Britain we don’t produce big brand, household name tech companies, there are some truly excellent companies offering world leading tech in niche areas such as cyber security. The challenge is that many brilliant companies are still privately owned so investors looking to invest money in UK tech won’t have the choice they might like. There are, however, many firms out there that are listed on indexes such as the FTSE 250 and FTSE Small-Cap, and so accessible to investors.

Investing in smaller companies is a popular investment strategy. You back the stock market minnows and wait to (hopefully) cash in if they manage to successfully grow their business – or even hit the big time.

Investors looking to follow the tech story with some UK companies might not want to spend time searching for individual firms. Instead, they can allow the experts to do so on their behalf. Peters added: “There are some excellent managers who specialise in smaller companies, whose job it is to unearth innovative companies that are starting their journey, and in 10 or 15 years’ time will be big hitters."

Managers and their teams will typically be on the lookout for a company that has come up with something innovative that will see it grow faster than the economy and broader market.

There are a number of smaller companies funds on the Barclays Funds List such as the abrdn UK Smaller Companies Equity Fund.

The funds contain a number of UK tech companies. Among those that feature is London-based ATG - Auction Technology Group which produces the technology for online auctions and is used worldwide. Another example is Telecom Plus. This London-based business owns Utility Warehouse, which sells home energy, broadband, and mobile services.

Some managers also like Surrey-based firm Bytes that sells laptops and Microsoft licences to clients. Earlier this year it announced a collaboration agreement with Amazon Web Services working on cloud migration, modernisation and cloud security services in the UK and Ireland region.

Further afield, software company Kainos in Belfast provides information technology, consulting, and software for business clients and organisations. It also has a partnership with US software vendor Workday.

Not all small companies will be a success. A typical problem with smaller companies is they are more likely to simply fail – and many do. However, those that succeed could see share prices follow revenue and profit growth over the long term.

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