The British software sector stars investors should buy now

MoneyWeek magazine issue 917 cover image

You might not think of the UK as a market full of promising tech stocks. But our small and medium-sized companies are punching above their weight, says Dr Mike Tubbs.

When it comes to technology, Britain’s stockmarket doesn’t spring to mind immediately. There is no British Google or Apple, while our blue-chip index, the FTSE 100, is resolutely old-economy, dominated by miners, oil giants and banks. But it’s time investors took a closer look. While we may not have any national giants, we have plenty of excellent smaller companies with leading positions in global market niches. Many are profitable, expanding rapidly, and offer ample scope for impressive share price gains.

Indeed, there is a palpable sense of excitement surrounding the UK tech sector. The digital technology sector is expanding at an annual pace of 4.5%, around two-and-a-half times faster than the overall economy, and is now worth £184bn. We rank third in the world for total capital invested in digital tech companies, behind America and China, according to research published by Tech Nation, a network of tech entrepreneurs. London is widely deemed the third-most important centre for tech startups after Silicon Valley and New York. Rapid growers such as Deliveroo and TransferWise tend to hog the headlines, but a more obscure and fruitful area for investors is software. This sub-sector has expanded at an annual rate of 10.1% over the past five years and boasts sales of roughly £29bn.