The sky is the limit, so why bother with tech stocks?
Similar claims have been made recently: large tech stocks will finally cool off for a long Time, and as the economy recovers, investors should start adding more value stocks to their portfolios, like banks, oil companies and retail.
The so-called FAANGs have been the leading stock market gainers for years. But the spectacular growth of technology stocks may be coming to an end.
Vontobel Quality Growth Fund portfolio manager Kranson (Donny Kranson) said, “For investors, this is the biggest problem right now. But is it for FAANG?”
The Nasdaq has gained about 3% since the beginning of 2021, which is not bad, but not smooth all the way, but oscillating, and lagging behind the Dow Jones and Stamp 500.
Value investing makes a comeback
In terms of the historical index, value stocks are sharply ahead of growth stocks. iShares Stamp 500 Value ETF (IVE) is up 8% for the year, while the iShares Stamp 500 Growth ETF (IVW) is up just 1%.
Joel Schneider, associate portfolio head at Dimensional Fund Advisors, said, “We’ve seen strong performance in the value category so far this year. People are starting to take notice of it.”
In addition, the performance of the large technology stocks that dominate the historical index has been mixed. Shares of Amazon, Apple, Netflix and tesla have all declined this year, while Facebook, Google parent Alphabet and Microsoft have temporarily risen.
Several top investment experts believe that the volatility in technology stocks will continue for a while. DoubleLine, led by Jeff Gundlach, published a paper declaring that value investing is not over yet.
DoubleLine Equity portfolio managers Checcone (Emidio Checcone) and Ear (Brian Ear) said, “With more than 10 years of long moves in growth stocks relative to value stocks, it is reasonable at this point to consider reallocating some capital from growth to value The.”
Another top money manager sees more pain in the stock market. Cambria, which runs the Meb Faber blog, just announced that it is converting its global sovereign bond ETF into a fund that puts money in international stocks. It has an interesting ticker symbol: Fail (FAIL).
The fund will set up an exclusive U.S. ETF with the symbol TAIL, specifically to short the historical index. This is an interesting strategy given that some investors are increasingly worried about the future performance of technology stocks, which have dominated the historical index for a long time.
Don’t touch fashion stocks
There is also growing concern about the fadification of the stock market. Retail investors on Reddit have been pushing up speculative stocks like GameStop and AMC because of brokers like Robinhood, with bailout checks and easy, cheap trading opportunities.
Janus Henderson portfolio manager Tugman (Justin Tugman) said in a report, “This new phenomenon of ‘investing in stocks as entertainment’ could have disastrous consequences for investors when momentum reverses and stock prices fall. “
He added: “This behavior was seen before the tech stock crisis in 2000. While investors may be happy for much longer than the waking moments, ultimately valuations are the focus.”
The biggest concern is that investors have failed to learn from the previous market frenzy.
Morgan Stanley Investment Management (Morgan Stanley Investment Management) general manager Slimmon (Andrew Slimmon) said: “Most of these companies are not profitable. Once interest rates start to go back up, they are more risky. Beware.”
He added that many companies with rapidly increasing sales but failing to make a profit “are on the verge of bubble levels.
Banks, energy and retail sectors look attractive
So, which stocks are the best choices right now?
If long-term bond rates continue to rise and the job market begins to recover, banks, consumer stocks and other economically sensitive companies should benefit.
Fiona Cincotta, senior financial markets analyst at City Index, said, “With higher colonial interest rates and Inflation expectations, the stock market is shifting to cyclical stocks.”
She added: “This may not be a straight line up, nor will there be a significant rally. But as the situation develops, the data will show signs of improvement.”
Investors seem to recognize that FAANG is not the only company that has been able to overcome the crisis and keep the boom going during the Epidemic.
Stephen Lee, founder of Logan Capital Management, said: “Technology stocks were rewarded for their quick response during the epidemic. But now the market is rewarding more companies that can adapt. The class of stocks that are up big is expanding.”
He noted that retailers like Williams-Sonoma can expect to benefit from strong consumer demand and a resilient housing market. Energy, airlines and other value-based industries will also continue to rally as people start to travel.
Janus Henderson’s Tugman also notes that the “reopening of the post-epidemic economy” and rising inflation expectations also bode well for energy, chemicals and steel stocks, which he believes can pass on the cost of higher commodity prices to customers.
That said, investors should not completely ignore technology stocks or other growth stocks. It may just be necessary to reduce exposure to higher-risk companies, while having to make sure to look for quality targets.
Some stocks just move up on hope,” said Kranson. The situation where retail bird investors are not buying stocks for income is worrisome.” “One should have to gauge the business performance of the investment target before taking the plunge.”
In other words, leading stocks don’t necessarily have to be a successful class of stocks.
The higher the stock price, the more investors will believe that its future prospects will be good,” says Kranson. But that’s not always the case.”
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