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Photographer: Brendon Thorne / Bloomberg
Photographer: Brendon Thorne / Bloomberg
Hedge funds have fallen back in love with tech giants after spending the last few months of last year cutting these stocks.
Just days before the arrival of earnings from Apple Inc. and Amazon.com Inc., professional investors made the industry more bullish. On Tuesday, the cohort made their biggest net buy in a month, according to data compiled by Goldman’s main broker Sachs Group Inc. As a result, their net exposure to tech megacaps jumped at one of the fastest rates in the world. these last years.
Their renewed interest reflects confidence in the beneficiary power of a group whose resilience was highlighted during the Covid-19 pandemic. The Big Five – Facebook Inc., Apple, Amazon, Microsoft Corp. and parent company Google Alphabet Inc. – are expected to post profit growth faster than the rest of the market for a 12th straight quarter, according to analyst estimates compiled by Bloomberg Intelligence. .
“Just because we are emerging from an economic freeze linked to Covid does not mean that the trend towards digitization, software and automation is disappearing,” said Giorgio Caputo, senior fund manager at JO Hambro Capital Management. “A lot of these larger cap software and internet companies are very well positioned – advertising continues to move online, businesses continue to move to the cloud.”
Hedge funds tracked by Goldman Sachs increased exposure to tech megacaps, with their long / short ratio in the group climbing to 20.5% from a low of 14% reached earlier this month. Although the tilt is at the highest levels of last year, it flies in the face of the more popular notion that tech giants will not be able to maintain their solid gains as the recovery widens.
Those who turn more Sean Darby of Jefferies and Savita Subramanian of Bank of America Corp. energy stocks – companies that have benefited the most from an economic recovery.
For Gene Goldman, chief investment officer at Cetera Financial Group, the latest hedge fund tech rush is likely a tactical move to prepare for some positive earnings surprises in the weeks ahead. Seen from a broader perspective, he said, these behemoths face two major headwinds: potentially higher interest rates that hurt highly valued stocks and intensified government regulation.
“There is near-term optimism, almost like a last hurray,” he said, adding that it comes “before the rate hike and any concerns about big tech with a Democratic government slowing it down.” .
A spin away from home commerce makes sense amid advances in vaccines and government aid. Profits from energy industries to manufacturers are expected to decline this year, accelerating the expansion of the S&P 500.
But Netflix Inc.’s 17% rally on Wednesday’s eruption results is a reminder of the risk of coming out too soon. The highly technological Nasdaq 100 Index just posted one of its best weeks against small caps in recent months, rallying 4.4%, double the gain of Russell 2000.
While tech earnings are expected to follow the market this year and next, this is a testament to their performance during the 2020 recession. For example, the combined earnings growth of the big five tech companies is expected to lag from the next quarter. . Yet at around $ 224 billion, their 2021 profits will be 31% more than they earned in 2019, the year before the pandemic broke, four times the growth of other S&P 500 companies over the past year. this period.
Even this episode of below-average expansion will likely be short-lived. The tech giants will regain their advantage early next year, analysts estimate.
“The Amazons of the world, the need for digital connection and digital communication, it won’t go away even if the economy improves,” said Nela Richardson, chief economist at ADP. “There is growing recognition that the dominance of technology continues to persist.”
– With the help of Vildana Hajric
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