The last time the global tech sector outpaced the next best performing sector as much as it is this year was in 1999. This year alone the NASDAQ Composite has closed at a new record 67 times, so far. As Riva Gold reports in the Wall Street Journal, “Just eight companies—Facebook Inc., Apple, Amazon.com Inc., Netflix Inc., Alphabet Inc., Baidu Inc., Alibaba Group Holding and Tencent—have increased by $1.4 trillion in market cap in 2017, a sum roughly equivalent to the combined annual GDP of Spain and Portugal.”
While technology companies have helped take U.S. and some Asian stock markets to record highs, less tech-heavy bourses of Europe, Canada and Australia haven’t enjoyed the same success.
For MSCI Europe, roughly 85% of its underperformance relative to world stocks can be attributed to differences in the weight and performance of their technology sectors, according to Morgan Stanley.
“There’s no doubt the markets that have high tech components will have been the best performers this year,” said Paul Markham, a global equities portfolio manager at Newton Investment Management, who has invested in many of the tech behemoths. “The narrow nature of this rally has to be seen as something of a concern…but these are cash-generative companies who are being seen as the bedrock of the new economy.”
This assessment rings of the turn of this century “new economy” mantra. Back then, while Wall St. was predicting “new economy” stocks would grow for years, they were actually sitting right around the corner from one of the worst bear markets in history.
As valuations in the tech sector head into lightly charted territory, it pays to remain vigilant about your portfolio’s risk, and its exposure to such investments.
Jeremy Jones, CFA
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