Global fund managers boost exposure to tech giants

It appears professional investors do not expect the tech boom to end any time soon. 

Technology stocks have been seemingly unstoppable in recent months, and global fund managers are taking the opportunity to top up their positions. 

Data from FE Analytics reveals that global equity funds’ top 10 most-bought stocks over the last six months include Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Facebook (NASDAQ:FB). Chip-makers are also proving popular with global investors as a way to play the technology theme. Taiwan Semiconductor (NYSE:TSM) and ASML (NASDAQ:ASML), among the most-bought stocks, make components which feature in smartphone handsets and computers, including Apple products.

Apple tops $2 trillion market cap

The FAANG stocks (Facebook, Amazon, Apple, Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL), now called Alphabet) have been incredible performers compared to the wider market, with the correction commentators keep predicting nowhere yet in sight. In fact, this month Apple became the first US company to become a $2 trillion business, with its stock surging this year to reach an all-time high.

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The combined market value of the Big Five tech stocks – Amazon, Alphabet, Apple, Facebook and Microsoft – now towers above most national equity markets, including Japan. Looked at another way, the five largest stocks on the S&P 500 index, Apple, Microsoft, Amazon, Alphabet and Facebook, now represent more than a fifth of that index. 

Global equity fund managers don’t seem to be concerned that the tech rally will soon suffer a hard reset. While just over 10% of funds contained e-retailing behemoth Amazon in their top 10 holdings six months ago, this has now crept up by 2.3%. The same amount again increased exposure to Facebook, from 7% at the start of the year. And the percentage of funds with Apple as a top 10 holding went from 12% to 13.3% over the period. Microsoft, however, became slightly less of a feature in portfolios, with a 0.3% decrease in funds holding the stock over the last six months.

Kingswood’s chief investment officer Rupert Thompson notes that the technology sector has outperformed global equities by more than 30% since the start of the year, while the UK has underperformed by more than 20%. 

Valuations not stretched?

“In fact, this story has been playing out for a lot longer than this year and we have just seen the passing of a depressing milestone for the UK market,” he says. “The entire market cap of the FTSE 100 index is now smaller than that of Apple, whose market cap has burst through the $2 trillion mark.

“In good part, this is down to Apple’s share price, which is up as much as 70% year to date and now trades on a heady forward price-earnings ratio of 33x. But sadly, it also reflects the fact that the market cap of the FTSE 100 has gone nowhere over the last 20 years.”

Despite what looks like a very frothy sector to the untrained eye, Thompson says valuations don’t look stretched compared to tech’s history, and so he is keeping his positioning in the space. 

“The FAANGs undoubtedly face increased regulatory and tax headwinds. But we believe this is more than compensated by the secular tailwinds in favour of the tech sector more generally, which have only been reinforced by Covid-19. Meanwhile, tech valuations are still nowhere back to the highs seen in the 1999-2000 tech bubble. Consequently, we plan to retain our tech exposure,” he adds.

Most-bought stocks among global funds over the past six months 

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.