24.03 Liontrust Global Innovation Report - The Rise of AI 04.24 - Flipbook - Page 12
WHY INVEST IN TECHNOLOGY?
The old-fashioned view of the technology sector is that it is blessed with lots of growth but
little else. We believe this view is outdated and that arguably the technology sector is the
highest quality sector in the stock market.
While the technology sector has historically achieved high growth,
as the charts below show, today it is also the sector with the lowest
leverage, highest returns on equity and highest free cash flow margins
– key attributes of high-quality companies.
We believe these strengths are somewhat underrated by many
investors. While technology companies may have justifiably
earned a reputation for specialising in spending rather than making
money in the past, good technology companies now make money,
and plenty of it. In many a tech naysayer’s eyes, this was never
supposed to happen. Yet technology companies are among the
best positioned companies to manage higher interest rates and
tighter financial conditions given their high returns on capital and
low reliance on cheap capital.
Best fundamentals
Lowest Leverage: Net debt to EBITDA
1
7
5.7
6
5
3.4
4
2.6
3
1.5
2
1.6
1.7
2.0
Highest return on invested capital: ROIC %
Real estate
Utilities
Comm services
Consumer staples
Consumer
discretionary
Industrials
Russell 1000
Health care
Materials
0.1
Information
technology
0
1.5
0.8
Energy
1
5.7
1
30%
25%
25.3%
23.4%
22.2%
19.9%
20%
19.7%
16.9%
15%
14.7%
12.5%
11.9%
10%
11.5%
8.8%
6.5%
5%
Real estate
Utilities
Financials
Comm services
Materials
Health care
Russell 1000
Consumer
discretionary
Industrials
Consumer
staples
Energy
Information
technology
0%
Highest free cash flow margin
1
30%
20%
20.8%
14.1%
11.1%
10%
10.7%
9.9%
8.9%
7.1%
5.5%
4.7%
2.9%
0%
-10%
-12.5%
-20%
Source: Bloomberg, Russell 1000 Index, data as at 14.02.24. Past performance does not predict future returns.
12 - The rise of AI: Technology and Innovation Report
Utilities
Real estate
Consumer
staples
Consumer
discretionary
Materials
Russell 1000
Health care
Energy
Industrials
Comm services
Information
technology
-30%
