The market’s technology focus is “short-sighted,” says the portfolio manager

Tech stocks are listed on the Nasdaq.

Peter Kramer | CNBC

The market’s affinity for big tech stocks this year is “short-sighted,” according to portfolio manager Freddie Lait, who said the next phase of the bull market will spread to other higher-value sectors.

Shares of the American tech giants have been on a rebound so far in 2023. Apple Wednesday’s trading closed up nearly 33% year-to-date while Google’s parent company alphabet is up 37% Amazon is 37.5% higher and Microsoft has increased by 31%. Facebook parent Meta has seen its stock rise more than 101% since the turn of the year.

This small pool of companies differs greatly from the broader market Dow Jones Industrial Average less than 1% higher in 2023.

The gap between Big Tech and the broader market widened after earnings season, with 75% of tech companies beating expectations, compared to a fairly mixed picture in other sectors and generally poor economic data.

Investors are also betting on more rallies as central banks begin to slow and eventually reverse the aggressive monetary tightening that has characterized them Rlatest times. Big tech outperformed for years during low interest rates and then got a big boost from the Covid-19 pandemic.

However, Lait, a managing partner at Latitude Investment Management, told CNBC’s Street Signs Europe on Wednesday that while the market’s positioning was “rational” under the circumstances, it was also “very short-sighted”.

“I think we’re going to enter a very different cycle over the next two to five years, and while we might have a rough time this year and people might go back into big tech as interest rates go up, I think.” “The next leg of the bull market — whenever it comes — is going to be broader than the last one we saw, which was really just some kind of tech and healthcare sector,” Lait said.

The market's technology focus is

“You have to start working in some of these more Dow Jones stocks — industrials or old economy stocks to some extent — to find the deep value that you can find in otherwise great growth companies that are doing something.” lie outside.” different sectors.”

Lait predicted that the growing valuation gap between technology and the rest of the market will gradually narrow as market participants discover value in sectors other than technology over the next six to 12 months.

However, given the strong earnings performance Silicon Valley has shown in the first quarter, he believes it pays to own some technology stocks as part of a more diversified portfolio.

“We also own some of these tech stocks, but I think there’s a concentration of risk in a portfolio that’s solely focused on them,” he explained.

“More interestingly, this misses out on a variety of opportunities that exist in the broader market: other companies whose growth rates are at similar levels to tech stocks are trading at half or one-third the valuation, giving you more.” .” Diversification, more exposure if the cycle is different this time.”

He therefore advised investors not to be totally skeptical of tech stocks, but to think about widening the rally and “narrowing the valuation gap” and “choosing when to get involved.” The market’s technology focus is “short-sighted,” says the portfolio manager

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