Managed Money and Big Investors are Buying ‘FAANG’ Stocks
$AAPL, $FB, $IBM, $QCOM, $GS
Managed money and big investors, whose exposure to large-cap tech stocks boosted their returns during Q-1 of this year, are 2X’ing down on their investments even as stocks like Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) dip.
Fund managers such as T Rowe Price and Federated Investors, who were already overweight the sector, said they were buying beaten-down so-called ‘FAANG’ stocks( Facebook, Amazon, Netflix, and Google-parent Alphabet) during a two-day selloff that marked the largest tech sector decline in nearly a year.
Jeff Rottinghaus, portfolio manager of the T Rowe Price Large-Cap Core Equity fund, said he has been adding money to existing tech holdings such as Facebook and Amazon because they are positioned to continue to grow over the next few years regardless of the direction of the overall economy.
With other secular growth stories hard to find, “It’s getting to the point where you have to say, ‘What else do you want me to own?'” he said, adding that these companies continue to be up significantly year-to-date despite recent declines.
Analysts expect the S&P 500 technology index to grow its earnings by 12.4% this year, better than the S&P 500’s 11.6% expected growth, according to Thomson Reuters I/B/E/S.
About 40% of the stocks in the S&P 500 information technology index rose Monday, including Qualcomm (NASDAQ:QCOM) and International Business Machines Corp (NYSE:IBM) which have lagged in Y 2017.
“This tech selloff is a great buying opportunity,” said Navellier & Associates Chairman Louis Navellier, who bought shares of Micron Technology Inc., Applied Materials Inc., Arista Networks Inc. and STMicroelectronics NV.
In the 8-year-old Bull market, investors have consistently been ‘buying the dips,’ taking advantage of brief pullbacks in prices, so large-cap stocks have not seen a 10-percent correction in well over a year.
Although stocks are expensive by historical measures, Bullish investors say they are justified by growth in earnings and the US economy, while historically low bond yields are also making stocks more appealing.
The stumble in tech comes a time when both mutual funds and hedge funds have taken outsized bets on the sector, helping push Facebook, Amazon, Apple and Microsoft to add a total $600-B in market cap YTD.
Tech stocks in the S&P 500 rallied 21% for the year through 2 June, with the largest companies accounting for 46% of the S&P 500’s 9% gainer, according to Goldman Sachs (NYSE:GS).
That rally sent some tech-heavy tech funds soaring.
In May, Light Street Capital Management’s $1.2-B Halogen fund was up 11% and is up 42.6% this year through the end of May. The head of the fund, Glen Kacher, started his career at Tiger Management, Julian Robertson’s famous fund.
Concerns that fund managers had piled into the same stocks and stretched their valuations helped prompt a selloff that began Friday and continued through Monday, sapping 5% or more from companies such as Apple.
Momentum-based technology stocks have “built a valuation air pocket underneath creating cause for pause,” Goldman Sachs wrote in a note Friday.
Steve Chiavarone, a portfolio manager at Federated Investors in New York, said he saw the tech selloff as a sign that investors were feeling more confident that The Trump Administration could pass infrastructure or tax legislation later this year.
Last week’s testimony by former FBI chief James Comey did not contain the sort of bombshell that investors had feared, Mr. Chiavarone said, prompting fund managers to rotate out of tech into sectors that have lagged.
“It allowed folks to believe once again that Congress is not going to be bogged down in a massive impeachment effort and could get some policy work done,” he said, which would benefit energy and financial stocks that initially rallied following Trump’s unexpected victory but lost their gains following Inauguration Day.