Technology is by far the best performing stock market sector so far this year – something that many observers have attributed to a handful of megastars, namely Facebook, Apple, Amazon, Netflix and Google (FAANGs).
hand in hand
Share price performance, % change 2018 to date
Source: Thomson Reuters Datasteam. Data covering period 12.07.2017-01.08.2018
The bad news is that some of the FAANGs are finding the going tougher of late for a number of reasons, including increased scrutiny from regulators, lofty investor expectations and saturated markets.
The good news is that the tech universe’s remarkable performance is more broad-based than many realise; it includes numerous companies with strong earnings and attractive growth potential.
Indeed, although the big stars have certainly contributed to overall tech gains this year, the rest of the sector has also done very well. True, the S&P 500 Information Technology index1 – where Apple alone accounts for 15 per cent and the top 10 constituents make up nearly two-thirds of the market capitalisation – gained 12.8 per cent in the first eight months of 2018. But its equally weighted version – where every stock has the same degree of influence – is up 12.3 per cent. If only a few stocks were rallying, we would not see that.
Looking at earnings gives some insight as to why the tech world is now about more than just the top names. While FAANGs comfortably outperformed the rest of the sector in terms of earnings before interest and tax (EBIT) growth 2014-2015, that performance has since evened out (see chart).
earnings success not limited to faangs
EBIT, % growth year-on-year
* The S&P 500 IT index does not include Amazon or Netflix.
Source: Pictet Asset Management, Thomson Reuters Datasteam, Bloomberg. Data covering period 30.06.2011-30.06.2018
This pattern isn’t just true for the latest quarterly earnings results, but also about the overall trend. Over 90 per cent of companies in the S&P 500 IT index are seeing improving earnings growth, according to our earnings breadth analysis (see chart).
WIDE-SPREAD PROFIT GROWTH
Earnings breadth for S&P 500 IT index, % of companies above 26-week moving average on 12-month trailing EPS
Source: Pictet Asset Management, Thomson Reuters Datastream, Bloomberg. Data covering period 22.01.2009-02.08.2018
One reason for tech’s success, we believe, is that – unlike many other sectors – it has buyers in both the consumer and corporate markets, meaning it captures a lot of the economic dividend.
Technology companies are able to apply extensive operational leverage: they can leverage intellectual property without the need to significantly expand its fixed costs, like staff or premises. The agility of such low fixed cost business models means tech companies are able to be nimble, and pivot to the fast changing competitive environment. This is critical in the era of disruption. While the biggest companies in a sector can become more encumbered by regulatory burdens and spend much of their time addressing their relationships with society or government, the rest are left to focus on innovation.
If economic growth continues, tech should continue to benefit. And while the FAANGs are likely to remain in the news, the evidence shows that the benefits to sector extend much farther than the headlines suggest.
The information and data presented in this material are for information purposes only and are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments in any jurisdiction. Investment involves risk. Past performance is not indicative of future results. Before making investment decision, investors should refer the offering documents. The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Information, opinions and/or estimates expressed in this material reflect a judgment at its original date of publication and are subject to change without notice. They are not prepared for any particular investment objectives, financial situation or requirements of any specific investor and do not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances or otherwise constitute a personal recommendation. If in doubt, please seek independent advice.
This material has not been reviewed by the Securities and Futures Commission or any other regulatory authority. The issuer of this material is Pictet Asset Management (Hong Kong) Limited.
About
Shaniel Ramjee
About
Shaniel Ramjee
Shaniel joined Pictet Asset Management in 2014 as a Senior Investment Manager in the Multi Asset London team.
Previously Shaniel worked at Barings Asset Management as an investment manager in the Global Multi Asset Group for 7 years.
Shaniel holds a MSc in Finance from the University of St. Andrews and a BA Hons in Economics and International Business from the University of North Carolina at Chapel Hill (US). Shaniel is a Chartered Financial Analyst (CFA) charterholder and holds the Investment Management Certificate (IMC).
In 2016, Shaniel was one of Financial News’ 40 under 40 Rising Stars in Asset Management.
About
Supriya Menon
About
Supriya Menon
Supriya plays a vital role in providing the Multi Asset team in London with in-depth investment research that helps steer tactical and strategic asset allocation decisions. She has built out cross-asset decision-making quantitative indicators covering valuation, fund flows and macro areas that are used across the firm. Supriya provides the Pictet Asset Management Strategic Unit with monthly Sentiment and Technical analysis and contributes to long-term thought leadership pieces.
Having joined Pictet Asset Management as a strategist in 2012, Supriya moved to the Multi Asset London team in 2018, where she assists the portfolio managers in decision-making and generates trade ideas for the balanced and multi-asset products. Supriya also communicates the team’s investment strategy to institutional clients and regularly appears on international media channels.
Supriya started her career at Morgan Stanley in 1999. She then worked as an Equity Strategist and Investment Analyst at Lehman Brothers from 2005 to 2009 after which she joined Aviva Investors as a Macro Strategist.
Supriya holds a BA in Economics and International Relations from Mount Holyoke College, Massachussets, USA and an MBA from the Harvard Business School.
Share this article
Important legal information
This marketing document is issued by Pictet Asset Management. It is neither directed to, nor intended for distribution or use by any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, the KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet.
This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or for any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.
EU countries: the relevant entity is Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg
Switzerland: the relevant entity is Pictet Asset Management SA , 60 Route des Acacias – 1211 Geneva 73
Hong Kong: this material has not been reviewed by the Securities and Futures Commission or any other regulatory authority. The issuer of this material is Pictet Asset Management (Hong Kong) Limited.
Singapore: this material is issued by Pictet Asset Management (Singapore) Pte Ltd. This material is intended only for institutional and accredited investors and it has not been reviewed by the Monetary Authority of Singapore.
For Australian investors, Pictet Asset Management Limited (ARBN 121 228 957) is exempt from the requirement to hold an Australian financial services license, under the Corporations Act 2001.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc. is registered as Portfolio Manager authorised to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
This website uses cookies to enhance user navigation and to collect statistical data. To refuse the use of cookies, change your settings or for more information, please click on the following link: Cookies policy. By continuing to browse this website, you accept the use of cookies for the above purposes.
