How Savvy Are Tech Stocks?

Many tech stocks were originally considered high risk, but over the years they have found favour among investors – and form a sizeable portion of many South African offshore investment portfolios. However, at present investment paranoia around the direction of dominant tech giants has taken hold. finweek takes a look at the current landscape and where value can be found beyond the usual suspects.

- Marcia Klein

On top of Brexit, trade wars and ominous inverted yield curves, uncertainty over the direction of the world’s most popular tech stocks is adding fuel to the paranoia that is permeating global markets – and taking hold among South African investors.

Tech stocks, led by the so-called FAANGs (Facebook, Amazon, Apple, Netflix and Google parent Alphabet), have dominated the investment landscape in the past few decades and account for almost 20% of the value of the S&P 500. As is the case with Naspers* on the JSE, the price movements of these few companies pretty much dictate the index’s ups and downs.

Nasdaq.com pointed out that “their outsized impact” has hurt the index over the last year, “with Facebook the only FAANG component in the green over the last 52 weeks, up 3.3%”. But that was at the timeshare prices have moved since then.

In fact, by the end of August, its increase over the year was barely more than 1%. The poor share performances across the tech board largely reflect a massive sell-off in the second half of 2018.

Against other broader indices, the dominance of the tech giants is a bit less obvious. There is a broader view that the tech giants “are all-conquering and dominate investment markets”, says Coronation Fund Managers’ head of global developed markets research, Neil Padoa. But he points out that the original FANGs (Facebook, Amazon, Netflix, Google) comprise only 4.5% of the MSCI All Country World Index, a widely used benchmark of the global equity universe. “If one includes Microsoft and Apple, the grouping still comprises less than 9% of the MSCI ACWI.”

However, he agrees that only a few have outperformed the S&P 500 over the last year – Microsoft (comfortably) and Facebook (only marginally).