ICT stocks beat out the bourse

ICT is seen as a risky sector as it changes so rapidly, but careful investment will pay off.

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Selected listed ICT stocks have beaten the pants off the JSE's all share index over the past five years, even as the Johannesburg bourse hovers near all-time highs.

A group of 29 ICT stocks - chosen by ITWeb based on their traditional ICT holdings as the bourse does not have an ICT index - have shown growth that is more than double over the past three and five years, when compared to the all share index.

If investors had bought one of each of the 29 stocks, their money would have gained 256% over five years, compared to 90% across the entire bourse. On a three-year view, an investment in ICT would have yielded a 123% gain, while the JSE's all share index grew 58%.

Over the past year, ITWeb's ICT index grew 17% compared to the JSE's 11% gain. The local bourse recently hit record highs, following in the footsteps of many global boards, such as the Nasdaq, S&P 500 and Dow Jones.

Vestact CEO Paul Theron says it "makes sense" the ICT stocks have beaten the JSE as the shares are mostly small- and mid-caps, which have a tendency to do well in a rising market. He adds some of the big gainers - such as AdaptIT - have turned around during the past few years, while others are "solid" stocks.

Some of the gains can also be attributed to the JSE being held back in recent times as the bourse has been heavily hit in resource stocks, says Theron. He notes five years is a reasonable time over which to compare stocks, as the figures will capture the market's recovery from its bottom in March 2009.

Theron adds ICT stocks will continue to hold allure as they are quite competitive, and companies and people are mindful of the need to refresh technology and advance as the sector moves into new areas, such as cloud computing.

However, independent analyst Paul Booth notes ICT stocks are often risky because the sector changes so fast. He says few institutional investors will look at the sector, being loathe to invest in such a rapidly changing area, although some may "dip their toe in".

In addition, says Booth, some of the stocks have changed dramatically over the past five years, such as Naspers, which has gone from being a media company to one heavily invested in the Internet and e-commerce. "ICT is a risky sector, there is no question about that."

Others, like ConvergeNet - which is now Stellar Capital Partners - are shadows of their former selves as they have divested much of their previous holdings, says Booth.

Despite the risk, Booth notes the ICT stocks hold the potential of big rewards, although he explains ICT's index is somewhat skewed by a few big hitters that have gained more than 1 000% in the past five years.

Among these are Adapt IT, MICROmega and EOH. Yet, Booth adds the JSE's all share index is likely to be skewed by a handful of companies that have shot the lights out, although the ratio of those when compared to the number of heavy hitters in the ICT index will be smaller.

Local ICT stocks also compare favourably with their international counterparts, as Brainstorm's April issue shows. A five-, three- and one-year comparison as of the end of January showed an average return of 261% over five years, 126% over three years, and 30% over one year. The Nasdaq, where most international tech heavyweights have listed, has shown returns of 114%, 65% and 13% over the same period.

However, the rand's devaluation against the dollar over the past five years - at just more than 40% - makes the local shares less attractive, and brings the local bourse's ICT gains more in line with those seen on Nasdaq.

Branching out further to include selected name brand ICT shares listed in other countries, such as Japan and the UK, the return comes in at 168% over five years, 84% over three years and 18% over one year.

* The shares in ITWeb's basket are: AdaptIT, Altron, Business Connexion, Blue Label Telecoms, Stellar Capital (ex ConvergeNet), Datacentrix, DigiCore, Datatec, Ellies, EOH, Cognition (ex FoneWorx), Gijima, Huge, ISA Holdings, Jasco, Metrofile, MiX Telematics, MICROmega, Morvest, MTN, Mustek, Naspers, Net 1, Pinnacle, Alaris (ex Poynting), SilverBridge, Telkom, TeleMasters and Vodacom.

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