Large investors are doubling down on their investments even as stocks like Apple Inc. and Facebook Inc stumble even though their high exposure to large-cap technology stocks boosted their returns during the first quarter of the year.
During a two-day selloff that marked the largest tech sector decline in nearly a year, the so-called ‘FANG’ stocks – Facebook, Amazon.com Inc, Netflix Inc and Google-parent Alphabet Inc, were beaten down and fund managers such as T Rowe Price and Federated Investors were buying the ‘FANG’ stock even as those managers were already overweight the sector.
In morning trading Tuesday, Google, Apple and other large tech stocks rose modestly.
Because they are positioned to continue to grow over the next few years regardless of the direction of the overall economy, he has been adding money to existing tech holdings such as Facebook and Amazon, said Jeff Rottinghaus, portfolio manager of the T Rowe Price Large-Cap Core Equity fund.
He said that with other secular growth stories hard to find, “It’s getting to the point where you have to say, ‘What else do you want me to own?'” Despite recent declines, these companies continue to be up significantly year-to-date, he added.
According to Thomson Reuters I/B/E/S, better than the S&P 500’s 11.6-percent expected growth, analysts expect the S&P 500 technology index to grow its earnings by 12.4 percent this year,.
“This tech selloff is a great buying opportunity,” said Navellier & Associates Chairman Louis Navellier, who bought shares of Micron Technology Inc, Applied Materials Inc, Arista Networks Inc and STMicroelectronics NV.
Large-cap stocks have not seen a 10-percent correction in well over a year because taking advantage of brief pullbacks in prices, investors have consistently been ‘buying the dips’ in the 8-year-old bull market. While historically low bond yields are also making stocks more appealing, bullish investors say they are justified by growth in earnings and the U.S. economy, although stocks are expensive by historical measures.
Helping push Facebook, Amazon, Apple and Microsoft to add a total $600 billion in market cap year-to-date, both mutual funds and hedge funds have taken outsized bets on the sector, and the stumble in tech comes at such a time. According to Goldman Sachs, with the largest companies accounting for 46 percent of the S&P 500’s 9-percent gain, tech stocks in the S&P 500 rallied 21 percent for the year through June 2nd.
That rally sent some tech-heavy tech funds soaring.
Goldman Sachs wrote in a note Friday that momentum-based technology stocks have “built a valuation air pocket underneath [them] creating cause for pause.”
A sign that investors were feeling more confident that the Trump administration could pass infrastructure or tax legislation later this year, was indicated by the tech selloff, said Steve Chiavarone, a portfolio manager at Federated Investors in New York.
Managers were prompted to rotate out of tech into sectors that have lagged as last week’s testimony by former FBI chief James Comey did not contain the sort of bombshell that investors had feared, Chiavarone said.
“It allowed folks to believe once again that Congress isn’t going to be bogged down in a massive impeachment effort and could get some policy work done,” he said, which would benefit energy and financial stocks that initially rallied following Trump’s unexpected victory but lost their gains following Inauguration Day.
(Adapted from Reuters)
Categories: Economy & Finance