A quant manager has dismissed the notion of a bubble in tech stocks, despite soaring prices and a 27% rise in a key index this year.
Neil Goddin, head of quantitative analysis and an equity fund manager at Kames Capital, said that the notion of a bubble in technology company valuations is “misplaced and overlooks their ability to transform the markets they operate in”.
‘FAANG’ stocks (Facebook, Amazon, Apple, Netflix and Google) along with other tech companies have soared this year and the MSCI Global Technology Index is up 27.6% year-to-date – well ahead of the MSCI World return of 16% at the end of September.
“These stocks are not cheap, but they are not displaying bubble-like characteristics either,” Goddin said.
Their share price gains are backed up by earnings, he said, adding that valuations were not at “crazy levels” when compared to periods like the dot.com bubble when some stocks were on 300 times earnings.
Tech companies globally have succumbed to bouts of selling in recent years, but Goddin says this was more to do with other areas of the market becoming undervalued than because technology had become too stretched.
“When we have seen sell-offs in tech over the last few years, it has not been driven by tech being ridiculously expensive, but rather because other areas have become ridiculously cheap, with investors selling shares that have risen the most to fund other purchases,” he said.
Goddin and his team, who manage the Kames Global Equity fund (along with Craig Bonthron) said viable investment themes in tech currently include change in the computer game market and the need for data storage.
Stock the funds hold include Coherent, a Silicon Valley photonics manufacturer, and Keyence Group, an industrial automation company.
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