search.noResults

search.searching

saml.title
dataCollection.invalidEmail
note.createNoteMessage

search.noResults

search.searching

orderForm.title

orderForm.productCode
orderForm.description
orderForm.quantity
orderForm.itemPrice
orderForm.price
orderForm.totalPrice
orderForm.deliveryDetails.billingAddress
orderForm.deliveryDetails.deliveryAddress
orderForm.noItems
The tech bubble – Cover story


The surge of retail investment backing Gamestop has raised an unexpected challenge for regulators. While there were con- cerns about a large group of presumed amateur investors driv- ing up share prices, it seemed difficult to argue that they should not invest in an asset because it had an unrealistic valuation. After all, valuations across developed equity markets had been stretched for years, and nowhere more so than in the tech sector.


While it was perhaps a shock that an ailing video games retailer could reach $500 (£358) a share and a market cap of close to $100bn (£71.6bn), couldn’t the same be argued for some of the biggest large cap growth stocks across the developed world’s equity markets? To what extent was the behaviour of Reddit’s self- appointed army of “degenerates” any more or less rational than that of Softbank? The Japanese conglomerate, which had snapped up billions of dollars of derivatives, became a key driver of the tech sector’s gold rush at the end of 2020. In December, it sold its positions, having booked close to $3bn (£2.14bn) in losses. For investors who have been in the market for more than two decades, the combination of investor euphoria and inflated share prices is reminiscent of the tech-bubble at the turn of the century. There is, however, one crucial difference: in today’s tech surge, the growing dominance of passive investment vehi- cles in institutional portfolios and a strong focus on market cap benchmarks means that many large pension schemes are more heavily exposed to tech stocks. The question is, are UK schemes concerned about the tech bubble bursting?


Tech stock valuations have surged during the pandemic and are a major constituent of many institutional portfolios. With fears of another dotcom bubble mounting, are schemes adjusting their strategies or is it a case of this time it’s differ- ent? Mona Dohle reports.


Big winners Tech stocks were big winners of the Covid pandemic, partly due to unprecedented levels of monetary stimulus and partly fuelled by their perceived resilience to the economic hit of the health crisis. Indeed, the collective value of the five largest stocks in the sector – Facebook, Apple, Amazon, Netflix and Google’s parent company Alphabet – jumped by 50% in the first half of 2020. But while these companies are labelled tech- nology stocks, they serve different markets, including consumer discretionary, information technology and commu- nications, which means they have different growth drivers. As share prices have surged, assessing the value of companies with different income models is complex. If they are measured by traditional market metrics, such as a price/earnings ratio, for instance, valuations for the largest tech firms appear stretched.


In the case of Alphabet and Microsoft, the dominant position in stock markets also corresponds to a quasi-monopolistic role in the real economy. In other cases, such as clean energy giant Tesla, the connection between share prices and the real economy appears less tangible. A market cap of more than


Issue 101 | March 2021 | portfolio institutional | 21


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52