Although investors have pointed at recent volatility to call for a shift to value stocks, there are still promising secular growth opportunities in tech and internet-focused communications stocks, according to Janus Henderson.
Denny Fish, Janus Henderson technology equities portfolio manager, said the upward valuations in since March and the subsequent sell-off in September may show the need for a change from growth to value stocks, but a long-term horizon was still the best way to view technology investments.
“We are not numb to the power of shorter-term market movements, particularly when at what can be perceived as near-term extremes,” Fish said.
“But we believe we are on the cusp of the fourth industrial revolution as economic profits get redistributed to digital rents and away from many legacy industries.
“Importantly, while many technology stocks have seen significant price appreciation, many of the market-leading tech and internet-focused communications companies may offer some of the soundest fundamentals and best secular growth across all equity sectors, and we have seen them deliver strong financial performance.”
Fish said as tech and internet stock prices rose over much of this year, they commanded a higher portion of the growth equities universe.
“While growth indices’ tilt toward tech raised some eyebrows, mega-cap companies’ contribution to index earnings and cash flow growth, in many cases, has even exceeded the pace at which their share of several benchmarks has risen,” Fish said.
“Importantly though, tech is not homogenous with predictable distributions of winners and losers.
“The later stages of the recent tech rally have shown evidence of indiscriminate buying, with little differentiation made between stocks leveraged to long-term drivers and those that are more speculative or actually have negative transformational headwinds.
“Times like these are where active management may be of benefit.”
The ‘fourth industrial revolution’ would involve a shift towards growth in the areas of artificial intelligence (AI), cloud computing and increased connectivity that improved efficiencies across the entire economy.
“Tech’s solid fundamentals have been building for several years with many companies seeing outsized rewards in the public markets in 2020,” Fish said.“Returns ebb and flow but we believe growth stocks are among the longest-duration assets that tend to find ways to stay the course with the best business models.
“This is especially true for the tech companies leveraged to the secular themes of AI, cloud computing and the Internet of Things.
“These complementary forces are the underpinnings of a digital global economy that has been years in the making.”
