It is safe to say that anyone who got comfortable investing in technology stocks over the past decade has felt the heat since the start of the year.
This week, data from Tilney Bestinvest revealed that of the traditional US tech giants (the FAANGs plus a few extra names thrown in for good measure), only Twitter has made a positive return, up 16.5%. The full table is below.
Twitter’s shares surged on a bid from Tesla chief Elon Musk to buy the company for $44bn, while figures out this month revealed 30 million new users on the site in the past year, although advertising revenue growth was less than expected in the first quarter of 2022.
Outside of Twitter, the picture is gloomy at best. The likes of Apple, Alphabet and Amazon have all made losses in the teens, while some such as Netflix (down 66.8%) and Meta (46.6%) have fared much worse.
Even the ever-reliable Microsoft, which is not a FAANG but still included in the study, is down 19.3% year-to-date.
One argument is that investors have been confronted by a ‘wall of worry’, a largely unhelpful finance term that just means there are a lot of things to be nervous about.
You may have heard that there is rampant inflation in the world, with supply shortages and spiking oil prices causing a cost-of-living crisis.
Tilney managing director Jason Hollands also highlighted Russia’s war with Ukraine and brewing concerns that China’s renewed round of draconian lockdowns under its ‘zero Covid’ strategy will lead to factory closures and global supply chain shortages.
“The war in Ukraine and Chinese lockdowns risk further feeding the global inflationary impulse,” he said.
Source: Tilney
All this increases the likelihood of higher interest rates: something that has not been a concern for more than a decade. This has hit growth stocks, which are valued on expectations of future cashflows, something that becomes much harder to calculate and more uncertain in this environment.
However, much like the lemming chasing the one in front of if off a cliff, investors tend to chase after the funds that have done well in the past. As such, many will be holding onto funds and stocks that are down heavily this year. This particular lemming is nursing several funds with 30% losses.
“This will have been compounded by the growing popularity of ‘passive funds’ which track major indices like the S&P 500, since these plough money into the companies with the largest valuations, irrespective of whether or not these look expensive compared to history,” Hollands said.
There has been one glimmer of support in the UK, however. Investors have been shielded somewhat from the worst of the falls by currency, as the dollar has strengthened 7.8% against the pound this year.
While it is difficult to know how long the current turbulence for growth stocks will continue, inflation concerns and the prospect for rising interest rates are not going away.
It might not be the time to sell your worst performers – after all, the phrase is not buy high sell low – but taking a more balanced approach may be no bad thing.