Photographer: Brendon Thorne / Bloomberg
Photographer: Brendon Thorne / Bloomberg
Hedge funds have fallen in love with technology giants again after cutting back on these stocks in the final months of last year.
Just days before Apple Inc. and Amazon.com Inc. entered, professional investors made the sector more optimistic. On Tuesday, the cohort made its largest net purchase in a month, according to data gathered by Goldman Sachs Group Inc.’s prime brokerage. As a result, their net exposure in tech megacaps has grown at one of the fastest speeds in recent years.
Their renewed interest reflects confidence in the profitability of a group whose resilience was underscored during the Covid-19 pandemic. The Big Five – Facebook Inc., Apple, Amazon, Microsoft Corp. and Google’s parent company Alphabet Inc. – are expected to report faster earnings growth than the rest of the market for a 12th straight quarter, according to analyst estimates compiled by Bloomberg Intelligence. .
“Just because we’re coming out of a Covid-related economic freeze doesn’t mean the trend of digitization, software and automation is going away,” said Giorgio Caputo, senior fund manager at JO Hambro Capital Management. “Many of those larger capacity software and internet companies are very well positioned – ads keep moving online, businesses keep moving to the cloud.”
Hedge funds followed by Goldman Sachs have increased exposure to tech mega caps, with their long / short ratio in the group rising to 20.5% from a low of 14% earlier this month. While the tilt trails have seen spikes from last year, it goes against the more commonly held view that the tech giants won’t be able to sustain their robust gains as the recovery spreads.
They run more cautious with technology include Sean Darby at Jefferies and Savita Subramanian at Bank of America Corp. In a survey this month, the bank’s money managers said they’ve cut tech allocation to a low in two years, while putting money in banks, small-caps and energy stocks – companies that benefited most from an economic recovery.
According to Gene Goldman, chief investment officer at Cetera Financial Group, the latest rush of hedge funds into tech purchases is likely a tactical move to brace for positive earnings surprises in the coming weeks. Viewed from a broader lens, he said, these behemoths face two major headwinds: potentially higher interest rates harming richly valued stocks and tightened government regulations.
“There is short-term optimism, almost like a last hurray,” he said, adding that it comes “before surging rates and one of the concerns surrounding big technology with a democratic government slows it down.”
A rotation away from the stay-at-home trade makes sense given the advances in vaccines and government aid. Profits for industries, from energy to manufacturing, are expected to decline this year, driving the faster expansions in the S&P 500.
But The 17% rally of Netflix Inc. Wednesday after eruption results reminds us of the risk of leaving too early. The tech-heavy Nasdaq 100 Index has just posted one of its best weeks compared to small caps in recent months, rallying 4.4% – twice Russell 2000 gains.
While tech revenues are expected to follow the market this year and next year, it is a testament to how well they fared during the 2020 recession. For example, the combined earnings growth of the five major tech companies is likely to lag next quarter. . Still, at an estimated $ 224 billion in 2021, their profits will be 31% higher than what they earned in 2019, the year before the pandemic hit – four times the growth for other companies in the S&P 500 during that period.
Even this period of under-expansion is likely to be short-lived. According to analyst estimates, the tech giants will regain their lead early next year.
“The Amazons of the world, the need for digital connections and digital communications, that is not going away, even as the economy improves,” said Nela Richardson, chief economist at ADP. “It is increasingly recognized that the dominance of technology continues.”
– With the help of Vildana Hajric