Tech Industry Insights: ​Performance and Potential of Tech Funds​

Following the slump suffered by the technology stocks in 2022, the story of 2023 focuses on the impressive recovery of the US equity market and it remains centered on the performance of technology stocks. Sectors headlined by major tech companies far outpaced the broader market, generating the bulk of gains in 2023.​

Source: S&P 500 Index as of December 31, 2023. Information Technology and Communication Services represent a subset of stocks included in the S&P 500. Past performance is no guarantee of future results. For illustrative purposes only.​

A group of “mega-cap” stocks attracted significant investor attention in 2023. These technology-oriented stocks, sometimes referred to as “the Magnificent Seven,” are among the largest in the S&P 500 index. These include Alphabet (Google’s parent company), Amazon, Apple, Meta Platforms (Facebook’s parent), Microsoft, Nvidia and Tesla. These seven stocks are responsible for a substantial portion of the S&P 500’s strong performance last year. Notably, Amazon and Tesla, while perceived to be technology companies, are actually classified as Consumer Discretionary firms in the S&P 500 index. In 2023, the Magnificent 7 stocks logged an impressive average return of 111%, compared to a 24% return for the broader S&P 500.

Given their most recent price gains, investors now raise the question, do tech stocks remain an attractive value for investors?

We believe that the answer lies in the ability of these tech companies to deliver impressive returns this year, to justify their current valuation. For short-term investors, it is prudent to wait for the release of the next set of earnings to see if companies can maintain or even beat their current earnings growth to live up to current stock prices and/ or potentially even re-rate higher. Guidance coming from companies themselves and indications on where they will invest next should also help investors decide. ​

-SBC Equity Fund Managers​

Valuations of tech shares continue to trade a premium over the broad market. Shares of the seven biggest companies in the S&P 500 Index are priced at an average of 35x projected profits, which is nearly twice the multiple of the other 493 stocks in the S&P 500 benchmark. Consensus growth estimates on S&P 500 EPS over the next 2 years are at 7.4% and 12.6% and markets are already pricing in 150bps of rate cuts in 2024. These top tech shares will likely need to prove that investments in the realm of Artificial Intelligence (AI) are paying off to justify their valuations.

We are of the view that while earnings should drive 2024 returns,
coupled with positive outcomes from the macro-backdrop such as falling interest rates, easing monetary policy, and more favorable economics are viewed positively by equity investors and should also support incrementally higher multiples for the sector.

-SBC Equity Fund Managers​

The Technology Industry

Over the past decade or so, the technology industry has experienced exponential growth, transforming the way businesses operate today and even disrupting traditional sectors. AI, blockchain, the Internet of Things, and renewable energy are just a few areas within the technology sector that demonstrate great investment potential. Nvidia, a 30-year-old company that is heavily involved in the artificial intelligence arena, is a prime example of how the surge of excitement over the potential of AI can fuel investor enthusiasm. During 2023, Nvidia stock rose 239%. We think that innovations will continue to change the world and companies continually emerge – making room for new opportunities for investors and investors of growth stocks are always on the lookout for companies that can withstand headwinds and grow faster than the economy as a whole.​

SBC Equity Fund Managers’ View

Over the long term, we think that technology stocks are expected to play a significant role in any broadly diversified portfolio. And just like any risky asset, investors must also factor in the risks when investing in such a sector. Prices of growth stocks are generally very volatile and extremely susceptible to market environment changes. If you recall, the impact of the change in the underlying economic environment, with rates on the rise, first took a toll on technology stocks in 2022 causing a bear market for the sector. This year, Fed policy should become dovish as inflation declines further and a more dovish Fed policy is viewed positively by equity investors, supporting higher valuations. However, other factors such as increased regulation regarding AI and social media could serve as a potential headwind to their growth outlook. Hence, investors should also weigh these factors when considering putting exposure to technology stocks in their portfolios and always stay aware of market environments while diversifying their portfolios.

Investing in passively managed funds such as the SB US Technology Equity Index Feeder Fund can provide exposure to the sector, focusing in on the performance of top 100 U.S. mega-cap stocks. These companies, known for their sizable market capitalizations and significant influence in the tech, communication, and consumer discretionary sectors, dominate Invesco’s NASDAQ-100 ETF (QQQM)’s holdings.

DISCLAIMER:
The production of this material/video is to share the updates and/or views of the Fund Managers of Security Bank Corp. through its Trust & Asset Management Group and the views expressed herein accurately and exclusively reflect his or her personal views. The Fund Manager’s updates and/or views are not intended to be comprehensive and do not purport to contain all the information that a prospective investor may require. The investor should not rely solely thereon without making any independent analysis or research on any topic covered by the video. The Fund Managers’ updates and/or views are not intended as a substitute for sound investment or risk management advice. No representation or warranty as to its accuracy, reasonableness, or completeness, express or implied is hereby made. In no case shall this material/video be taken as an offer to engage in investment or trading. Reproduction of this material/video, whether in whole or in part, is strictly prohibited without the prior consent of Security Bank Corporation. Security Bank Corporation denies any liability that may arise out of any loss or may result in actual, direct, or consequential damage from the use or reliance on the content of this material/video. You acknowledge that you read and understood this Disclaimer and agree to be bound by the conditions therein.
DISCLOSURE:
  • THE UNIT INVESTMENT TRUST FUND (UITF) IS A TRUST PRODUCT AND NOT A DEPOSIT ACCOUNT AND IS NOT INSURED OR GOVERNED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC).
  • THE UITF IS NOT AN OBLIGATION OF, GUARANTEED, OR INSURED BY THE TRUST ENTITY OR ITS AFFILIATES OR SUBSIDIARIES.
  • DUE TO THE NATURE OF THE INVESTMENTS OF A UITF, THE RETURNS/YIELDS CAN BE GUARANTEED. HISTORICAL PERFORMANCE, WHEN PRESENTED, IS PURELY FOR REFERENCE PURPOSES AND IS NOT A GUARANTEE OF SIMILAR FUTURE PERFORMANCE.
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