The technology, media and telecoms (TMT) space encompasses a diverse grouping of companies - but at their heart the majority of these companies are focused on different forms of communication.
To place it in a physical context the sector could include the company which provides your smartphone, the firm which designs the microchips which power that device, the broadband provider whose wi-fi you tap into and the publisher which generates the content you are scrolling through.
What’s included in this sector: Companies in this sector run the spectrum from small technology startups to better established firms, struggling print media operators, large broadcasting companies and substantial telecommunications and mobile telecommunications specialists. The lines between broadcasters and telecoms firms are becoming blurred by a tendency to offer packaged services which include a TV, broadband and phone offering.
The industry: The technology sector is driven by future trends and the most successful companies in this space are typically those which successfully anticipate these trends. By contrast telecoms and media companies tend to be more mature and established.
Risk profile: The risk profile varies considerably. Some early-stage technology firms may have little more than an idea at their disposal and can be extremely volatile. Print media companies have struggled to develop an online model which can replace the declining sales of newspapers and magazines and advertising revenues. Mature broadcasters and telecoms firms are generally more stable.
The objectives you might have for investing in this sector: A study by Dallas-based bankruptcy attorney Allmand Law suggests 90% of technology startups fail. But the 10% which do succeed can see significant increases in their share price. Telecommunications firms are at the opposite end of the risk spectrum with secure cashflows and good earnings visibility supporting generous dividend payments. Limited growth potential means they are likely to suit income investors best. Investing in the publishing industry is largely a play on the wider economy and involves identifying the companies which are becoming more successful at generating revenue from their online content or operate in resilient niches.
Higher profile companies in this sector:
BT (BT.A) - Investing heavily in sports rights as it looks to challenge Sky in the pay-TV arena
Micro Focus (MCRO)- Cash generative IT firm currently working through the integration of HPE Enterprise after $8.8bn merger.
Vodafone (VOD) - The world's second largest mobile telecommunications company
WPP (WPP)- A specialist in advertising and public relations and the largest global ad firm by revenue
Affected by:
GDP growth
Interest rates
Consumer spending
For the most part technology firms develop products and services for which there is a perceived demand - while telecoms and media companies are also essentially consumer driven businesses. The sector's fortunes are therefore tied up with the wider economy.
Affects:
Industrials
Energy and raw material costs
The adoption of technology can help improve the efficiency of factories and other industrial operations. This could also lead to a reduction in demand for increasingly scarce natural resources.
Numbers to watch out for:
Royalty rates - a payment to an owner for the use of property - in particular patented technology
Average revenue per user - how much a TV, telephone or broadband provider earns from each subscriber
Global R&D spend - The amount the world spends on research and development
Device volumes - The amount of smartphones or tablets sold worldwide
Relevant ETFs:
Powershares EQQQ Fund (EQQQ) - tracks the technology-heavy US NASDAQ index
db X-trackers MSCI World Information Technology (XWDT) - seeks to replicate the performance of information technology companies in developed economies.
