Hi-tech shares take US for a walk on the high side

But like as not "permanent revolution" better describes the people and companies around San Francisco. In spite of the bursting in 2000 of the dotcom bubble, centred on Silicon Valley, the area has remained at the forefront of innovation. Drive south of San Francisco airport and one corporate head office afterwards the straightway proclaims the dominance of the US in computing and the internet. On your left, a huge campus for Oracle. On your right, the headquarters of Intel. Furthermore along, there's a highway named Google taking you into the Googleplex. Nearby is Palo Alto, home to Facebook, and if you know the way to San Jose, you'll find Cisco and eBay. Furthermore south in Cupertino, one of the world's biggest buildings, a circular spaceship-like giant, is going up to house, appropriately enough, the world's largest company by value, Apple.

The collection of world-class universities

The collection of world-class universities and technology institutes in the area, led by Stanford and Berkeley, plus the in a class by itself way that American venture capital accesses and monetises academic talent, will ensure the bay area will probably remain the world's research hub for a generation to come.

Apple's extraordinary sales and profitability is driving a new stock market craze for innovation stocks. Apple's share price, $400 at the beginning of the year, went through $600 this week, and Morgan Stanley issued a note saying it is heading towards $720. The Nasdaq innovation-heavy stock market index, which rose and fell so spectacularly between 1998 and 2000, has already climbed halfway back to its former heady heights.

The performance tables in recent months

Funds investing in North America or research have swept past emerging markets funds to dominate the performance tables in recent months. The average North America fund is up 19% over the past six months alone, with research funds earning investors an average of 18%, according to figures from trustnet.co.uk.

"The argument for tech has been mentioned many times - both consumer and corporate spending are driving profits and cash flow. All we need now is some dividends from the sector! All eyes are on Apple to see whether it dips into its $100bn cash pile. So even though America and tech isn't as cheap as it was, I would however be a buyer at today's levels."

The vast hoard of cash that American tech giants are sitting on - much of it held outside the US for tax purposes - is another driver of share prices. "One of the things that makes the research sector attractive is that the large caps are generating a lot of cash and have got very strong balance sheets as a result. If you put Microsoft, Google, Intel, Oracle, Cisco and Qualcom at the same time with Apple, those seven companies have got over $300bn of cash on their balance sheets," says Jeremy Gleeson, manager of Axa Framlington's Global Research fund. Launched while the dotcom craze in May 1999, the fund lost investors most of their money when the bubble burst, however over the past three years is up 119%. It's a lesson in just how volatile and risky this sector can be.

General rule

As a general rule, investment advisers recommend that small investors commit no more than 10% of their money to pure US funds. Many global funds already have a decent weighting to the US, during UK funds will hold stocks, just as GlaxoSmithKline, that make much of their revenues in the US. Hargreaves Lansdown recommends Legg Mason US Smaller Companies and M&G American, even though Yearsley adds: "It is very hard to find consistently good US fund managers - for some reason the S&P index is notoriously difficult to beat." For a pure innovation fund, Yearsley rates GLG Innovation.

Funds and unit trusts Do it yourself on fund platforms just as Fidelity Funds Network or Hargreaves Lansdown Vantage, or through discount brokers just as Chelsea Financial Services. Minimum investment typically £1,000 or £50 per month. Expect to pay a small initial charge plus 1.5%-2% a year. Trustnet.co.uk is a good source of fund performance information, or visit Guardian Investing's fund and Isa supermarket. Alternatively, use an independent financial adviser to select a fund for you, nevertheless the initial charge may be much higher. Go to unbiased.co.uk to find an independent adviser.

Three years ago, San Francisco-based Salesforce.com was trading at $25 a share nevertheless since at the time it has rocketed to $150, with Wall Street convinced it will be one of the biggest winners from the move to "cloud" computing.

The idea of the cloud is that instead of buying expensive servers and data storage and staffing huge IT departments, companies will cut costs and access much of what they need through the internet. It's or rather like loading your photos onto internet services that store them remotely nevertheless let other people access and view them as so then.

Salesforce.com has already picked up 100,000 corporate clients for its cloud-based sales tools, with revenue jumping 37% last year to $2.3bn. The stock has become one of the most glamorous on the Nasdaq, and is currently trading on around 70 times revenues, compared with 10-15 for most companies.

I was on the verge of cashing in my research fund holding this week, which has long been an investment disaster for me, nevertheless a recent uplift in its value has made me think again.

In retrospect, I couldn't have chosen a worse time to invest in research when in mid 2000 I decided to put a £1,000 inheritance into the at that time hugely popular Henderson Innovation Investment Trust, which the previous year had impressively turned each £100 investment into £282.

What I didn't realise at that time

What I didn't realise at that time was that the research bubble was about to burst. By April 2001, my £1,000 holding had plummeted and was worth just £432. I saw no point in cashing in my losses. I had always viewed it as a long-term investment and thought I would leave it to bounce back up over the ensuing 10 years or so.

My investment had changed by at that time into a holding in the Polar Capital Innovation Trust, following HTT manager Brian Ashford-Russell's move to set up his own investment house, Polar Capital Partners, and taking the renamed investment trust with him. The administration of my holding was as well switched to BNP Paribas Securities Services.

So when I received a letter at the end of January from BNP Paribas saying that it was transferring the plan management and administration of accounts containing shares in Polar Capital to Alliance Trust Savings, and that I had several options, including selling my shares in the company, it was the prompt I needed. I thought it might all things considered be time to give up on the innovation dream and cut my losses.

Sun: A CEO's Last Stand, is Business Week's cover story for July 26, and there's an "online extra" in the form of an interview with Scott McNealy. He's always interesting because he has the same kind of gigantic ego as his better-known buddies, Larry Ellison and Steve Jobs, though Sun's products are becoming increasingly irrelevant.