Investors snap up US tech stocks and ignore crowded trade warning
Net fund flows into the sector clocked in at $1bn by midweek
Investors poured money into funds for technology stocks this week at the most vigorous clip since January as they look to tap into big gains this year despite persistent concerns that the trade has become “crowded”.
Net fund flows into the tech sector clocked in at $1bn in the week to Wednesday, according to an analysis of EPFR Global data by analysts at Bank of America Merrill Lynch.
The investor support was “broadly based”, with the week’s top 10 funds encompassing robotics, semiconductors and digital communications, said EPFR director of research Cameron Brandt.
Tech stocks have posted blistering gains this year. The MSCI World information technology index, which covers big and medium capitalisation tech companies across developed economies, has risen 30 per cent year to date, almost double the gains of the broader benchmark.
The increased spotlight on the tech sector comes after a survey released by BofA showed that bets on tech stocks rising is once again viewed as the most crowded trade among global fund managers.
Many of the world’s biggest tech companies are poised to report quarterly earnings over the next two weeks. Microsoft and Amazon report next Thursday with Apple, Alphabet, and Facebook due the following week.
Wall Street analysts reckon the S&P 500 tech sector, which includes the biggest American tech groups, will record year-on-year earnings growth of 8.8 per cent for the third quarter, the best of any sector except for the still-recovering energy industry, according to FactSet data. IBM has already posted a bullish surprise that sent its shares rallying this week.
Strong industry figures are expected to provide further justification for the big gains this year, with investors focusing on guidance for the coming quarters.
American tech companies are also seen as big beneficiaries of proposed US tax reform, including a provision that would allow them to repatriate cash held overseas. Technology companies are responsible for the majority of $2tn in US corporate cash held overseas, with healthcare in second.
Hopes for tax reform had begun to fade in recent weeks, in part because of Republican infighting. But sentiment shifted back late this week after the Senate passed a budget resolution that should help pave the way for President Donald Trump’s tax agenda.
By the close of trading on Friday, Wall Street had powered to record highs, led by financials, industrials and technology stocks. The S&P 500 gained 0.5 per cent to 2,575.21, while the Dow Jones Industrial Average added 0.7 per cent to 23,328.63. The Nasdaq Composite also reached a new high, rising 0.4 per cent to 6,629.05.