The IT sector in Australia is a misnomer. In the US, this sector includes companies the like of Microsoft, Intel, Apple, Dell, HP and many more big game changers. It is the biggest sector in the US stock market.

In Australia, our IT sector is dominated by a very good company, but it is a share registry – Computershare (CPU). There are only two IT companies in the top 100 and four in the top 200, listed in the table below. The Australian IT sector is only 0.7% of the ASX 200 by market capitalisation!

Little to chose from

In my last review of 22 March 2013, Computershare was just a contender with a consensus recommendation of 2.5, using my cut-off for inclusion in a High Conviction portfolio (1.0 is the highest rating, 5.0 is the lowest).

It has subsequently slipped further and, as Table 1 shows, its price has moved backwards (5.7%) over the last six months or so. The sector went up by 3.3% over the period against the broader index, which rose 4.1%.

Table 1: Data on companies in the ASX 200’s IT sector

Carsales.com (CRZ) and IRESS (IRE) both did well at 23.7% and 21.8% capital gain, respectively, but that could not have been predicted based on the consensus recommendation. Both recommendations have improved over the period but neither excite. All four ratings are well outside my sphere of interest and so this is a clear case of no thank you – at this point in time.

If we turn to the sectoral comparison in Table 2, there is an apparent disconnect. The IT sector has the fourth best-adjusted capital gain by my calculations. But when we bring in risk – given the size of the sector – why would we bother investing in IT?

Table 2: ASX 200 sector statistics

Action plan

Most sectors are looking a little tired but Energy and Materials seemingly have a good – but risky – future. The high-yield sectors are overpriced as a group and so what should investors do?

My personal view is clear. Given my own circumstances – which I am not suggesting are not ‘normal’ – I am looking to down-weight Financials and look for opportunities in Energy. I have never owned any IT stocks but those who had Carsales.com and IRESS over the last six months should have big grins – but what risk were they taking?

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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