More people are using credit to make purchases. And that’s key for the tech sector.
That’s because growing credit giants such as Visa and MasterCard are classified as technology companies, says Mark Lin, vice president and portfolio manager at CIBC Asset Management. He manages the Renaissance Global Science and Technology Fund.
As well, these companies “don’t carry loans that that [could] go bad in a credit downturn,” unlike their competitor, American Express. “They’re simply payment networks that connect to terminals [that] process the electronic money people want to [use to] pay for their merchandise or services.”
Lin notes that since consumers are more frequently substituting credit for cash to pay for small purchases, major technology-based credit companies will likely continue to outperform. Also, due to the barriers to entry in the credit card space, Visa and MasterCard aren’t likely to face new competition any time soon.
Online travel companies are also top performers in the tech space. They offer customers convenience and choice, Lin finds, and they let people create customized vacation packages that can be cheaper than advertised deals.
Take Priceline, a company that’s expanded its services beyond North America. “It’s one of the most successful companies [and it’s been] able to capitalize on the growth of the Internet.”
Also, it has low overhead costs, says Lin. “If you look at [the company’s] financial statements and all the cash flow it generates, it uses far less than 10% of [that revenue] to sustain the business.”
In fact, he prefers Priceline to Expedia. “We own both, but we have a much larger position in Priceline in our portfolio. It’s more profitable [and] the return on assets [is] well into the double-digit space.”
In terms of future investment opportunities, Lin notes “China is now the largest Internet market in the world,” with more than 600 million users (in contrast, there are only 250 million users in the U.S.) So, investors interested in the tech space should keep an eye out for new online business models and services coming out of China.