Photographer: Brendon Thorne / Bloomberg
Photographer: Brendon Thorne / Bloomberg
Hedge funds have fallen in love with technology giants again after spending the last months of last year cutting those stocks.
A few days before the profits of companies like Apple Inc. and Amazon.com Inc. came in, professional investors made the industry more optimistic. On Tuesday, the cohort made its largest net purchase in a month, according to data compiled by the main brokerage of Goldman Sachs Group Inc. As a result, its net exposure in technology megacaps has jumped into one of the fastest steps in recent years.
His renewed interest reflects confidence in the profit power of a group whose resilience was emphasized during the Covid-19 pandemic. The Big Five – Facebook Inc., Apple, Amazon, Microsoft Corp. and Alphabet Inc., Google’s parent company – are expected to report faster profit growth than the rest of the market for the 12th consecutive quarter, according to analysts’ estimates compiled by Bloomberg Intelligence.
“Just because we are emerging from an economic freeze related to Covid, it does not mean that the trend towards digitization, software and automation is going away,” said Giorgio Caputo, senior fund manager at JO Hambro Capital Management. “Many of these big-cap software and internet companies are very well positioned – advertising continues to move online, companies continue to migrate to the cloud.”
The hedge funds monitored by Goldman Sachs increased exposure to technology megacaps, with their long / short ratio in the group rising to 20.5%, from a 14% decrease reached earlier this month. While the slope tracks the peak levels seen last year, it runs counter to the most widely accepted notion that tech giants will not be able to sustain their hefty gains as the recovery widens.
Those who are turning more tech-savvy include Sean Darby of Jefferies and Savita Subramanian of Bank of America Corp. Energy stocks – companies that have benefited the most from an economic recovery.
For Gene Goldman, chief investment officer at Cetera Financial Group, the hedge fund’s latest run on technology purchases is likely a tactical move to prepare for positive earnings surprises in the coming weeks. Seen from a broader lens, he said, these giants face two major headwinds: potentially higher interest rates that hurt valuation-rich stocks and tighten government regulations.
“There is short-term optimism, almost as a last breath,” he said, adding that it comes “before the rate hikes and any of the concerns about big technologies with a Democratic government slow down.”
A rotation away from domestic trade makes sense amid progress in vaccines and government aid. Profits from the energy to industrial industries are expected to return this year, delivering the fastest expansions on the S&P 500.
But Netflix Inc.’s 17% rise on Wednesday with the results blown is a reminder of the risk of leaving too early. The high-tech Nasdaq 100 index has just recorded one of its best weeks for small businesses in recent months, up 4.4% – double Russell’s gain in 2000.
While gains in technology are expected to keep up with the market this year and next, it is evidence of how well they did during the 2020 recession. For example, the combined profit growth of the big five technology companies is likely to be slower from next quarter. Still, at about $ 224 billion, their profits in 2021 will be 31% more than they earned in 2019, a year before the pandemic – four times the growth of other companies in the S&P 500 during that period.
Even this below-average expansion spurt is likely to be short-lived. By analysts’ estimates, the tech giants will have their advantage back early next year.
“The Amazons of the world, the need for connection and digital communication, this will not go away even with the improvement of the economy,” said Nela Richardson, chief economist at ADP. “There is a growing recognition that the dominance of technology continues to persist.”
– With the help of Vildana Hajric