The shares have fallen sharply from lofty pandemic highs, yet fund managers are divided on whether further pain or a rebound lies ahead.
Two years ago, Maroun Younes, a portfolio manager for Fidelity in Sydney, launched a new fund hoping to capture the excitement sweeping global financial markets as technology shares soared, defying the global recession.
The Nasdaq index has fallen by a quarter from its peak last year while Australian tech shares have dropped 40 per cent from their peak.“The industry is structured around short-term performance. It forces people to stay in there for as long as they possibly can, knowing that at some point things are going to change,” he says about growth managers trying to navigate the volatility.
Mawhinney, a veteran investor, railed against Afterpay’s share price when it eclipsed $100 in 2020, months before it peaked, and questioned the market’s sanity in driving the price higher.Anton Tagliaferro, founder and investment director of Investors Mutual, one of Australia’s best known value investors, echoed the sentiment. He marked the moment the buy now, pay later darling’s share price hit three figures by querying whether the market was “correctly pricing in fundamentals”.
“Yes, there’s been some spectacular winners, as there has been in mining stocks, but for every success, for every Facebook, there will be many that don’t make it.” “As you approach zero nominal interest rates, the laws of valuation break down. That’s why you witnessed companies trading on 50 times sales and these cryptocurrencies appear and disappear. It just didn’t make sense.”Now, inflation has changed the game. Central banks are responding aggressively to quickly rising consumer prices with higher interest rates, forcing investors to rethink the value of future profits across the tech complex.
“If you’re burning cash and any profits you have are five years-plus out, you’ve been severely hit,” explains Tynan. “What’s happening for them now is there’s actually a slowdown in earnings. They’re less exposed to interest rates, but there’s a meaningful slowdown in earnings.”In March, portfolio managers at T. Rowe Price, one of the world’s largest fund managers and one that has a long history of investing in growth companies, spoke with Amazon executives.
“It’s amazing how a 50 to 75 basis point hike by the Fed is already creating a sell-off in demand that is already impacting margins,” Ruiz says. He also has an eye on enterprise software companies like Microsoft, ServiceNow, Salesforce, and MongoDB, which have become more attractive after declines this year.Managers of the global innovation and disruption fund Holon Photon, which holds names like Coinbase and Tesla, are just as bullish on the large-cap tech stocks as they were two years ago.
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