25 September 2020
At GAM Investments’ Weekly Equities Meeting held on 22 September, Mark Hawtin shared his views on the technology sector and disruptive growth themes.
Mark Hawtin – Technology Equities
As investors continue to question whether the tech sector is priced at dot-com bubble levels, it is worth noting that while the current growth / value disparity is extreme, so too is disruption. Ultimately, we do not believe the sector as a whole is significantly overvalued. However, in our view, pockets of the market (in particular work from home names) look expensive and vulnerable in a post Covid-19 world as economies re-open or a vaccine is found.
Recent market events (post-IPO stock price surges of Snowflake and Lemonade, for example) have led to fresh concerns of a 'frothy' market. On IPOs, only a handful of stock market debuts have occurred in the tech sector in the last 12 months. It could be argued, therefore, that the IPO market remains in a quality phase as lower quality names are not yet coming to market. There are also concerns over profitability. While it is true that close to a third of the tech sector is unprofitable, many companies are deliberately operating in this manner in a bid for growth, using every dollar to push for increased market share.
Ultimately, we believe it is important to focus on valuations. In addition, we believe several companies outside of the well-known mega-cap names are likely to be major beneficiaries of the fourth generation digital revolution, or ‘Digital 4.0’, which we expect to accelerate post Covid-19. Trillions of devices are becoming connected to the Internet of Things, while big data and AI are delivering a new era of growth and connectivity, transforming business models and creating new investment opportunities across healthcare, transportation and industrials.
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. September 2020.