US technology stocks faced some pressure in the first half of the year over worries about rising inflation and potential action from central banks to raise interest rates in an effort to stop economies overheating.
Those worries hit the share prices of tech giants such as Facebook, Amazon, Apple, Netflix, and Google – collectively known as the FAANGs – as well as other technology companies.
On top of the economic concerns the FAANGs have also had issues with investors becoming worried about share prices becoming overvalued given the fact their combined market capitalisation is now more than one quarter the size of the U.S. stock market. All five – plus Microsoft – have performed strongly due to increased digitisation during the COVID-19 pandemic as more activities have switched online.
Growing use of computers, e-commerce, the Cloud, streaming and the switch of advertising online is driving growth in the technology sector, but some are concerned about share prices outrunning business performance.
Professional investors are focusing on the long term
That is reflected in research from GraniteShares which shows professional investors on balance plan to increase their exposure to the tech sector over the next 12 months despite the current pressure on valuations of leading US tech stocks.
The study with hedge funds, wealth managers, IFAs, fund managers and institutional investors found more than two out of five (42%) say they will increase their own portfolios concentration of tech stocks over the next year with 12% planning to dramatically increase their exposure. However, there is some scepticism with 24% planning to cut their tech investments while 23% will maintain their holdings.
The research for GraniteShares, which offers investors a suite of index ETPs on a range of large US tech companies including Facebook, Amazon, Apple, Netflix, Alphabet, Google, Tesla, and Microsoft, as well as baskets or combinations of some of these stocks, found professionals believe retail investors may follow their lead. ETPs offer a pure way to gain exposure to top tech companies in the U.S. market.
Its FAANG, GAFAM and FATANG product suite, offers long, short and 3X leveraged ETFs on FAANG, GAFAM and FATANG indices and can be traded in a single ticker symbol via ordinary brokerage accounts. Indices are equally weighted and rebalanced quarterly.
FAANG consists of Facebook, Amazon, Apple, Netflix, and Google while GAFAM includes Google, Apple, Facebook Amazon, and Microsoft and FATANG covers Facebook, Amazon, Tesla, Apple, Netflix, and Google.
Professional investors think retail investors may follow them
Nearly half (47%) think retail investors should have more tech stocks in their portfolios while just 30% believe they should reduce their level of tech exposure and 23% say they should maintain current levels.
They are particularly optimistic about the medium and long term prospects for share price growth in the US tech sector. Around 75% of those questioned said now is a good time to buy large US tech stocks for investors who take a medium term view over one to three years.
They are slightly more confident about the long-term view over three to five years. Around 78% believe it is a good time to buy large US tech stocks for the long-term. Professional investors are increasing their exposure to the sector and are very confident about the medium term and long-term outlook
The short-term outlook for US tech stocks has been particularly rosy however with the FAANG stocks reaching all time share price highs at different points over the summer period (July-Sept 2021) . .
The retail investor view
Past performance is no guarantee of future performance but research among UK retail investors shows strong support for the growth prospects of the FAANGs which ought to translate into increased investment allocations.
Not all investors are convinced but more than half (51%) of regular share traders expect the share prices of the FANNGS to grow over the next three years with just 11% predicting they will fall and 26% believing they trade sideways.
Despite the optimism about the future prospects of the FAANGS, the study found that investment levels in the US tech giants are surprisingly relatively low among regular UK share traders and investors are unsure about how to access the US tech investment story.
Around 40% of regular share traders in the UK say they have no exposure to US technology companies in their current portfolios. On average investors have around 8% of their portfolio invested in US technology stocks and less than one in 10 (9%) have more than 15% of their portfolio allocated to the US tech sector.
A possible explanation thrown up the research is that investors are struggling to find ways to invest in US technology stocks which do not involve simply buying the shares direct. GraniteShares launched the world’s first FAANG ETP earlier this year along with other products offering access to GAFAM – Google (technically Alphabet) Amazon, Facebook, Apple, and Microsoft – as well as FATANG – Facebook, Amazon, Tesla, Apple, Netflix, and Alphabet.
They can be traded via ordinary brokerage accounts and offer a way for investors convinced about the US technology growth story to increase portfolio allocations.
GraniteShares currently offers 54 exchange traded products (ETPs) listed on the London Stock Exchange. They consist of a suite of index ETPs tracking FAANG stocks and a suite of Short and Leveraged Single Stock Daily ETPs tracking some of the most popular companies in UK and U.S. markets.