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Market’s tech focus is ‘shortsighted,’ portfolio manager says

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Tech stocks on display on the Nasdaq. 

Peter Kramer | CNBC

The market’s affinity for Big Tech stocks this 12 months is “shortsighted,” based on portfolio manager Freddie Lait, who said the subsequent bull market phase will broaden out to other sectors offering greater value.

Shares of America’s tech behemoths have been buoyant up to now in 2023. Apple closed Wednesday’s trade up almost 33% year-to-date, while Google parent Alphabet has risen 37%, Amazon is 37.5% higher and Microsoft is up 31%. Facebook parent Meta has seen its stock soar greater than 101% because the turn of the 12 months.

This small pool of corporations is diverging starkly from the broader market, with the Dow Jones Industrial Average lower than 1% higher in 2023.

The gulf between Big Tech and the broader market widened after earnings season, with 75% of tech firms beating expectations, in comparison with a reasonably mixed picture across other sectors and broadly downbeat economic data.

Investors are also betting on further rallies as central banks begin to slow and eventually reverse the aggressive monetary policy tightening that has characterised recent times. Big Tech outperformed for years in the course of the period of low rates of interest, after which got a significant boost from the Covid-19 pandemic.

Nevertheless Lait, managing partner at Latitude Investment Management, told CNBC’s “Street Signs Europe” on Wednesday that although the market’s positioning was “rational” within the circumstances, it was also “very shortsighted.”

“I feel we’re entering a really different cycle for the subsequent two-to-five years, and while we can have a tough period this 12 months, and folks could also be hiding back out in Big Tech as rates of interest roll over, I feel the subsequent leg of the bull market — every time it does come — will probably be broader than the last one which we saw, which was really just form of tech and healthcare led,” Lait said.

“You’ve to begin doing the work in a few of these more Dow Jones type stocks — industrials or old economy stocks, to a level — as a way to find that deep value that you may find in otherwise great growth businesses, just outside in several sectors.”

Lait predicted that as market participants discover value across sectors beyond tech over the subsequent six-to-12 months, the expanding valuation gap between tech and the remaining of the market will begin to shut.

Nevertheless, given the strong earnings trajectory demonstrated by Silicon Valley in the primary quarter, he believes it’s price holding some tech stocks as a part of a more diversified portfolio.

“We own a few of those technology shares as well, but I feel a portfolio exclusively exposed to them does run a concentration of risk,” he explained.

“More interestingly, it misses out on an enormous variety of opportunities which might be on the market within the broader market: other businesses which might be compounding growth rates at similar levels to the technology shares, trading at half or a 3rd of the valuation, providing you with more diversification, more exposure if the cycle is different this time.”

He subsequently advised investors to not be roundly skeptical of tech shares, but to think concerning the broadening out of the rally and the “narrowing of the differential between valuations,” and to “pick their moments to get exposure.”

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