Current Market Background

The sector is now very large globally and under-represented in the UK stock market. Innovation continues to open up new markets, which smaller companies can often more readily exploit. However, this can cause negative disruption for some companies within the sector as well as in the wider market. The extreme examples are Amazon displacing high street book sales, and increasingly other products, while newspaper circulations decline in developed markets. A reminder – the most successful smaller companies become large. It is fulfilling to see Sage,  which was a highly successful investment when in the nursery stage for HIT, in the FTSE 100.

The US remains the leading market in terms of innovation, sales, profits and market value, and it is evident that the skills obtained by younger management in successful businesses are readily transferred to emerging businesses, leading to a remarkable ability to scale businesses repeatedly. The US also has a strong profit making culture, and a sophisticated awareness of profitable business models. The ability to generate high gross margins is a particularly desirable investment attribute, and one achieved by technological leadership and market position. However, stock market investors are also more enthusiastic about the sector in the US. In fact the US technology sector has performed abysmally this century, reflecting the excessive valuations at the millennium and the aggressive marketing of IPOs at full valuations leading to inefficiently fat balance sheets. This proved a drag in the credit boom. Although there are a multitude of interesting companies in the US it is difficult to find ones as undervalued as those in the UK. More recently the sector has outperformed the wider market in the US, as the credit crunch has taken a greater toll elsewhere, and returns for £ investors have been enhanced by currency on translation to £.

The UK is a particularly fertile country for innovation, and a reasonable culture for entrepreneurialism, but there is not the same proliferation of talent to commercially exploit large opportunities as effectively as in the US, and capital is so much more constrained. While there has been excess capital in the US, there has been too little in the UK. Ironically, although the pool of successful companies is smaller, the limited capital availability seems to make it an easier market in which to make returns for HIT’s scale. We are currently benefiting from the emergence of a number of successful companies that were funded in the early stages of the UK’s temporary infatuation with the sector in the “internet boom”.

Europe has a less entrepreneurial culture, but some deep technology. Unfortunately shareholders are not respected there as they are in the US, and the markets are even more illiquid than the UK. The number of quoted technology companies in the rest of Europe is similar in number to the UK.

The Far East is growing in importance in terms of revenues. There is a divergence between Japan and the emerging Asian economies. Japan has few interesting emerging companies, and some quality large ones who contend with a strong Yen, and the bureaucracy of scale. We do not believe there are sufficient low hanging fruit to devote the necessary resources to cover this market, so do not invest in Japan. Korea has the two outstandingly successful electronics subsidiaries born of the chaebols in Samsung. This has spawned a number of interesting companies, which supply them. However, sales are generally dominated by those to one or other of the big two, so should not command much of a multiple. Taiwan has been to the computer industry what the black country was to the motor industry in the UK, and manufacturing has increasingly moved to mainland China to exploit its low labour costs. Companies with pricing power are hard to find, but as Taiwan moves up the value chain opportunities are arising, though in general, justifiably, they do not command the valuations seen in the US.

The portfolio contains a high concentration of profitable companies with a recurring revenue model, in order to provide ballast in an uncertain economic environment, and more disruptive companies with higher growth, which are participating in new markets. The most dynamic markets currently relate to the expansion of the internet, including the companies enabling the upgrade of the networks, the component suppliers to device manufacturers, the mobile internet and the proliferation of devices other than personal computers that can exploit the expanding internet infrastructure. There will over time be far more devices with an IP address than there are computers! The improved network is enabling an explosion in remote computing, with a number of associated buzz words- cloud computing, SAAS (software as a service), virtualisation, etc.

Valuations seem particularly appealing in the UK, especially at the small end, hence the high weighting there,  and it is encouraging to see more interest than there has been for some time. Some are surprised by this, and feel the UK economy appears particularly bleak. The portfolio has modest exposure to the UK consumer and government sectors and is a material beneficiary of weak sterling on a lagged basis, either for improved pricing and competitiveness on exports or on translation of earnings from overseas subsidiaries.



Have you received calls or emails from people claiming to represent Herald Investment Trust? They don’t! It’s a scam.  

They’ll say they can get back – for an upfront fee – money you lost investing in binary options and carbon credits or in unregulated investment schemes now being wound up in the High Court - like Essex & London Properties, African Land, or Manor Rose Limited. They can’t! Don’t send them any money! Call Herald Investment Management immediately on 020 7553 6300 and ask to speak to one of our compliance team.

Warning issued 18th February 2020


Welcome to the website for Herald Investment Management Limited (HIML). These pages provide a brief introduction to HIML and details of the funds it manages, currently Herald Investment Trust Plc, the Herald Worldwide Technology Fund and two venture capital limited partnerships.

These pages are regularly updated to include up-to-date financial and performance data, but please feel free to contact us with comments, or to request further information. It is important that you read the notices below before proceeding, as they explain certain legal and regulatory restrictions which apply to the information contained in this website.

The information provided in this website is solely for use by individuals who are resident in the United Kingdom and who are subject to UK tax; it is not intended as, and should not be regarded as, an offer or solicitation to sell investments in any jurisdiction other than the UK. Individuals who are not resident in the UK should not continue as it may be contrary to local laws or regulations for them to receive information in connection with, or to apply for, a UK investment. In particular, Herald Investment Trust Plc shares are not registered under United States securities law and, subject to limited exceptions, may not be offered, sold, transferred or delivered in the United States or to US persons. By proceeding, you are representing and warranting that you are not resident in, or a citizen of, a jurisdiction outside the UK.

Stock market and currency movements may cause the capital value of shares and the income derived from them to go down as well as up, and investors may get back less than they invested. Past performance is not necessarily a guide to future performance. The value of any tax relief you may be entitled to will depend on your individual circumstances. Current tax rates and reliefs may be changed by future legislation.

This website has been approved for purposes of UK regulation by Herald Investment Management Ltd which is authorised and regulated by the Financial Conduct Authority.

Although we have taken reasonable care to ensure that the facts contained in these pages are accurate, no representation or warranty, express or implied, is made as to their accuracy or completeness. The contents of the website are not to be considered as investment advice.

The information on this website is not for distribution outside the UK. Under no circumstances should this information, or any part of it be copied, reproduced or redistributed. No rights of any kind are licensed or assigned or shall otherwise pass to persons accessing this information.

If you are in any doubt about any of the information contained on this website please consult your stockbroker, solicitor, accountant or other professional adviser.

Authorised and Regulated by the Financial Conduct Authority
© Copyright & Disclaimer