Portfolio manager David Fingold says he’s conservative in mindset towards investing and that’s part of the reason why he’s steering clear of growth-oriented tech stocks these days. But maybe his more prescient point is this: don’t assume tech’s years of dominance say anything deep about the way the sector will perform going forward. In other words, just because you’ve made a bundle on Amazon or Microsoft in the past doesn’t mean there are more good times around the corner.
“Technology had this incredible run,” said Fingold, vice president of Dynamic Funds who spoke on BNN Bloomberg on Monday. “It [was] an almost continuous run of outperformance versus the market since 2009 and technology has reached 30 per cent of the S&P 500.”
“[But] in the past, when an industry has reached that much of the market, it has entered a period of underperformance. We saw that with technology after March of 2000, we saw that with Energy after the peak in 1981 — I like to refer to it as the curse of the 30.”
“My recommendation is to be underweighted [technology] or perhaps completely on the sidelines,” he said.
The finger-pointing has begun, as central bankers worldwide are in the hot seat on how they’ve handled the economy over the past while, specifically with relation to the current bullet train of inflation that’s not turning out to be the transitory, pandemic-related anomaly many initially had predicted. The key debate surrounds interest rates and whether or not central banks were right to wait as long as they did to start hiking them and, by that action, help cool the very economic engines that they had spent the last two years trying to rev up during COVID.
However those moves are dissected, it seems pretty clear that more key interest rate increases are to come, which, if you’re a fan of technology stocks be they of the small, large or mega cap variety is likely going to mean more volatility up ahead.
The TSX bumped higher on Monday as US markets were closed for Memorial Day, with tech stocks in Canada ending the day on a good note. The TSX Information Tech Capped Index finished up over two per cent with names like Constellation Software, Shopify and CGI Group all up to start the week.
But overall it’s been a tough haul for more than six months in tech, starting in mid-November when the market began rotating away from growth stocks and seeking solace in more defensive spaces like banks and utilities. Over that stretch, the tech-heavy NASDAQ Index has dropped 24 per cent — almost a quarter of its value — while the broader S&P 500 is down about 11 per cent over the same period.
For Fingold, the gloomy mood around tech could be a long-haul phenomenon.
“It’s important to understand that there may still be good opportunities within that space, but I think that one needs to be selective and one needs to be opportunistic about it,” Fingold said. “And unfortunately, these things happen.”
Fingold pointed to a fallow period in technology investing over the late 1980s and early 1990s before the dot-com era took off in earnest.
“We can get these pauses where there are these four or five year periods where technology growth is below average, and it’s possible we’re in a circumstance like that,” he said.
“The other thing is this is happening as other industries that were underperforming for very long periods of time have started to reassert themselves. Energy is an example but healthcare is also a top-performing industry that has reasserted itself recently, so the market may just be gravitating towards new leadership,” Fingold said.
Pick your spots, that’s the advice from National Bank Financial analysts Richard Tse and John Shao, who recently published a...