What to do with your ARM windfall

The £24.3 billion, cash only acquisition of UK microchip designer ARM by Japan's Softbank was officially sealed on 5th September, removing a high quality technology company from the UK stock market.

If you were one of the lucky investors who have put money into this British technology success story via your pension or ISAs you are likely to have made money, potentially lots of it.

• £1,000 invested a year ago would now be worth £1,820
• £1,000 invested three years ago would have grown into a £1,905 nest egg
• £1,000 invested 10 years ago would have turned into a staggering £15,179 cash pile

These figures are based on capital gain from the share price only, as ARM did not pay a particularly high dividend.  It is worth noting however that the firm had run a share buyback programme and increased its shareholder payout ever year since 2004.

ARM’s timetable suggests the cash will be making its way to shareholders on or around 19 September.

The big question is what ARM investors should do with the £17 per share cash that is about to hit their investment accounts. Is it time to buy the next big tech champion, snap up a tech fund for diverse exposure or use the cash to buy more of your favourite stocks?

Tech stocks

The obvious solution – certainly for those that wish to remain invested – is to look for the next ARM, essentially tomorrow’s UK technology champion. That’s a tricky challenge because ARM was unique.

Unfortunately there isn’t really a direct like-for-like comparison for ARM and I suspect that many investors may not be comfortable using Imagination Technologies, IQE or CML Microsystems as replacement holdings, as they have different models and spotty histories when it comes to share price performance.

One option is to look at some of the remaining Best-of-British technology plays, even if they won’t in most cases offer exposure to the sort of dominant market position or investment themes that ARM did.

Filtronic and Spirent bring some wireless equipment exposure but more on the systems than the handsets side, and the product cycles there are longer, but no more predictable for that.

Cyber security is a common theme that provides potential homes for ARM funds, with FTSE 250 pair Sophos and NCC both a possibility.

More mature options such as the cash generating machines of Micro Focus and Sage are safe haven options, with the former grabbing the headlines last week amid its headline-grabbing $8.8 billion merger with Hewlett Packard Enterprise.

It could be worth researching some of the intellectual property incubators. Names such as Imperial Innovations and IP Group bring exposure to a range of themes and technologies, even if there is also healthcare and biotech in there too. They are a potential long-term home for a small percentage of the ARM cash, especially for patient, risk-tolerant investors.

Funds and investment trusts

ARM addressed so many global themes that for many retail investors the best option may be to look at technology funds, to reduce the risk of putting the cash into a potential loser and cover as many of the bases as possible.

This would also provide easy access to overseas tech giants without having to put money directly into foreign stock markets.

Among the global tech funds, Fidelity Global Technology and AXA Framlington Global Technology have good long-term performance records.

If you prefer closed ended funds the Allianz Technology Trust is rated highly as is the Herald Investment Trust run by Katie Potts.  Polar Capital Technology is also worth exploring.