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Some investors look to diversify amid big tech rally

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November 6, 2021

By David Randall

NEW YORK (Reuters) – Rising valuations and hefty year-to-date gains for big technology stocks are pushing some investors to diversify away from the sector that has led markets for years.

Tech stocks have soared this year, and their big weighting in the S&P 500 has helped push the index to records with a 25.1% year-to-date gain in 2021.

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Some investors are worried the valuations may have ascended into nosebleed territory. Google-parent Alphabet, for instance, trades at a 12-month forward price-to-earnings ratio of 26.6, compared to a valuation of 21.1 for the S&P 500.

Apple Inc is valued at 26.2 forward earnings, while the information technology sector, up nearly 28% this year, carries a forward P/E of 26.4.

While gains in big technology stocks have boosted the S&P for more than a decade now, their heavy weighting could sink the index if tech falls out of favor. Microsoft, Apple and Amazon, Wall Street’s three most valuable companies, account for close to 15% of the S&P 500’s market capitalization, according to Refinitiv Datastream.

Fund managers in last month’s BoFA Global Research Survey named “long tech” as the market’s most crowded trade and had collectively reduced their “overweight” positions in tech stocks to the lowest level since May. The market’s top four most crowded individual stocks are Microsoft, Apple, Alphabet and Amazon, according to a recent analysis by research firm Bernstein, incorporating factors such as institutional ownership and price momentum.

Limiting exposure to tech stocks over the last decade has tended to hurt portfolio performance over the long run, making investors wary of cutting their holdings too drastically. Still, some are looking to broaden their portfolios to reduce their exposure to the sector’s biggest names.

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Garret Melson, a portfolio strategist at Natixis Investment Managers Solutions, believes large technology company stocks may be vulnerable to investors seeking to lock in profits and move some funds to other sectors. Melton is buying shares in financial and energy companies, which he believes will benefit from rising inflation and a strong economic recovery.

“We’re in the camp that the growth rate in the economy is being under-appreciated this year and next year,” Melson said.

Analysts at DataTrek Research believe sectors that can benefit from rising growth, including financials and energy companies, are likely to challenge big tech stocks into year-end.

“Technology has been a winning group for many years, and we expect it will continue to be so in the future,” they wrote in a Friday report. “But as investors consider where to allocate capital today … we think it likely they will seek out sectors with more exposure to improving economic fundamentals.”

Strong U.S. employment numbers on Friday brightened the economic outlook, as did news of a promising experimental antiviral drug from Pfizer. Travel stocks benefited, with the S&P 1500 airlines index climbing 7% on the day. [.N]

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Investors will gain insight into inflation when U.S. consumer price data is released next week.

Denny Fish, a portfolio manager and technology sector lead at Janus Henderson, said inflation concerns and high valuations in the technology sector have prompted him to look for smaller companies that will benefit from growth of giants with more crowded stock positions.

Fish is bullish on shares of Australian software development company Atlassian Corp PLC, whose product management tools “augment” Microsoft’s suite of applications, as well as Canadian e-commerce company Shopify Inc, which benefits from the growth of Amazon, he said.

“What we’re doing is finding emerging companies that have even better growth than the giant companies and rational valuations that will outperform over multi-year periods,” Fish said.

Plenty of investors remain bullish on big tech-focused stocks, citing their strong earnings and history of dynamic growth.

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Saira Malik, chief investment officer for global equities at Nuveen, is looking for tech companies that may benefit from rising inflation and have lagged the broad market rally.

She believes shares of Amazon.com Inc, which has trailed the market with an 8% gain this year, will be one such “catch up trade,” powered by growth in e-commerce.

“This is a time to be more selective,” Malik said.

(Reporting by David Randall; Additional reporting by Noel Randewich and Ira Iosebashvili; Editing by David Gregorio)

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Bukele steps up El Salvador’s bet on sliding bitcoin; buys another 150 coins

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December 5, 2021

SAN SALVADOR (Reuters) – El Salvador President Nayib Bukele said the Central American country had acquired an additional 150 bitcoins after the digital currency’s value slumped again, enlarging his bet on the cryptocurrency despite criticism.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down about 30% from the year’s high of $69,000 on Nov. 10. Bukele said last week that El Salvador had acquired 100 additional coins to take advantage of the currency weakening.

Late on Friday, Bukele announced the government had stepped into the market again.

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“El Salvador just bought the dip! 150 coins at an average USD price of ~$48,670,” Bukele wrote on Twitter.

Until Nov. 26, El Salvador had 1,220 bitcoins.

In September El Salvador became the world’s first nation to adopt bitcoin as legal tender, a move that generated global media attention but also attracted criticism from the opposition and foreign financial institutions.

The International Monetary Fund (IMF) said on Monday that El Salvador should not use bitcoin as legal tender, considering risks related to the cryptocurrency.

(Reporting by Nelson Renteria; Writing by Drazen Jorgic; Editing by Daniel Wallis)

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Bitcoin falls 9.2% to $48,782

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December 4, 2021

(Reuters) – Bitcoin dropped 9.29% to $48,752.15 at 22:01 GMT on Saturday, losing $4,991.54 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down 29.3% from the year’s high of $69,000 on November 10.

Ether, the coin linked to the ethereum blockchain network, dropped 3.61% to $4,070.52 on Saturday, losing $152.28 from its previous close.

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(Reporting by Juby Babu in Bengaluru; Editing by Daniel Wallis)

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Trump’s social media venture says it has raised $1 billion

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December 4, 2021

By Krystal Hu and Juby Babu

(Reuters) – Donald Trump’s new social media venture said on Saturday it had entered into agreements to raise about $1 billion from a group of unidentified investors as it prepares to float in the U.S. stock market.

The capital raise, details of which were first reported by Reuters on Wednesday, underscored the former U.S. president’s ability to attract strong financial backing thanks to his personal and political brand. He is working to launch a social media app called TRUTH Social that is at least several weeks away.

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Digital World Acquisition Corp, the blank-check acquisition firm that will take Trump Media & Technology Group Corp public by listing it in New York, said it will provide up to $293 million to the partnership with Trump’s media venture, taking the total proceeds to about $1.25 billion.

The $1 billion will be raised through a private investment in public equity (PIPE) transaction from “a diverse group of institutional investors,” Trump Media and Digital World said in a statement. They did not respond to requests to name the investors.

Trump Media inked its deal with Digital World to go public in October at a valuation of $875 million, including debt. The social media venture is now valued at almost $4 billion based on the price of Digital World shares at the end of trading on Friday. Trump supporters and day traders snapped up the stock.

Many Wall Street firms such as mutual funds and private equity firms snubbed the opportunity to invest in the PIPE. Among those investors who participated were hedge funds, family offices and high net-worth individuals, Reuters reported on Wednesday. Family offices manage the wealth of the very rich and their kin.

Some Wall Street investors are reluctant to associate with Trump. He was banned from top social media platforms after the Jan. 6 attack by his supporters on the U.S. Capitol amid concerns he would inspire further violence. The Capitol attack was based on unsubstantiated claims of widespread fraud in last year’s presidential election.

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“As our balance sheet expands, Trump Media & Technology Group will be in a stronger position to fight back against the tyranny of Big Tech,” Trump said in a statement on Saturday.

The deal also faces regulatory risk. U.S. Senator Elizabeth Warren asked Securities and Exchange Commission Chairman Gary Gensler last month to investigsate the planned merger for potential violations of securities laws around disclosure. The SEC has declined to comment on whether it plans any action.

Trump Media and Digital World said the per-share conversion price of the convertible preferred stock PIPE transaction represents a 20% discount to Digital World’s volume-weighted average closing price for the five trading days to Dec. 1, when Reuters broke news of the capital raise.

If that price averages below $56 in the 10 days after the merger with Digital World has been completed, the discount will grow to 40% with a floor of $10, the companies added. Digital World shares ended trading on Friday $44.97.

Trump had 89 million followers on Twitter, 33 million on Facebook and 24.5 million on Instagram at the time he was blocked, according to a presentation on his company’s website.

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Investors attending the confidential investor road shows were shown a demo from the planned social media app, which looked like a Twitter feed, Reuters reported.

FIRST-QUARTER ROLLOUT

Since Trump was voted out of office last year, he has repeatedly dropped hints that he might seek the presidency in 2024.

Special purpose acquisition companies such as Digital World had lost much of their luster with retail investors before the Trump media deal came along. Many of these investors were left with big losses after the companies that merged with SPACs failed to deliver on their ambitious financial projections.

TRUTH Social is scheduled for a full rollout in the first quarter of 2022. It is the first of three stages in the Trump Media plan, followed by a subscription video-on-demand service called TMTG+ that will feature entertainment, news and podcasts, according to the news release.

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In a slide deck on its website, the company envisions eventually competing against Amazon.com’s AWS cloud service and Google Cloud.

(Reporting by Juby Babu in Bengaluru and Krystal Hu in New York; Editing by Daniel Wallis and Cynthia Osterman)

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