Love or loathe them, internet Faang scan add bite to your Isa

HAS your investment portfolio got teeth? Five firms have been delivering terrific returns to investors — Facebook, Amazon, Apple, Netflix and Google.

These are the so-called Faang stocks (actually, Google is now called Alphabet, but market analysts like a good acronym).

Apple’s share price, for example, has gone from around $90 two years ago to $190 today, while Amazon’s has risen from just over $507 at the start of 2016 to around $1,800.

The main U.S. technology index, the Nasdaq 100, which is dominated by these giants, more than doubled between spring 2016 and March 2018. Then there is the march of the Chinese.

UK investors have enjoyed the ride via global funds, as well as through specialist U. S. and technology ones. U.S. tracker funds have also benefited because more than a quarter of the S& P 500 — America’s main market index — is technology.

But there are rumblings the party may be coming to a close.

Business Insider last week published comments from investment bank Morgan Stanley saying it had downgraded the technology sector.

Its chief U.S. equity strategist Mike Wilson talked of a drawnout bear market (one where prices tend to fall rather than rise), and said that since June 18, stocks such as utilities and real estate have outperformed technology and financials.

That’s a very short period. But the firm has backed its words with money by holding less technology than previously.

As investors, we must mix prudence with healthy scepticism. The thing about calling a downturn in the market is that eventually, someone will be right — and everyone forgets all the previous Cassandras who got it wrong. As if to illustrate the potential volatility of the sector, Netflix shares have fallen 8 pc since it announced this week that it has not added as many new subscribers as it had hoped and its expected earnings will be lower, wiping £13.7 billion off its value.

Jason Hollands, managing director of business development and communications at investment firm Tilney, says valuations on some U.S. and, in particular, tech stocks do appear stretched.

‘Trump tax reforms give an amnesty to firms moving cash back to the U.S. They use these to buy their own shares, pushing prices higher and arguably benefiting not just shareholders but also the management,’ he says.

Investors must also be aware of increased government and regulator activity around internet and social media firms, he says.

The UK information commissioner’s record £500,000 fine on Facebook for data breaches may be small beer compared with its £445 billion valuation — estimates suggest it is the equivalent of 18 minutes’ earnings — but it shows the direction things are going.

The key for investors is to stick with managers who have a deep knowledge of the market. I regard Baillie Gifford’s Scottish Mortgage Investment Trust as my main exposure to tech. Its biggest holding is Amazon, accounting for 10 pc of its money.

But you’ll also find Netflix and Tesla there, as well as Alibaba and Tencent, Chinese tech giants. Belying its name, 47 pc of its holdings are in the U.S., 21 pc in China and 24 pc in the EU. Just 2.5 pc are UK equities. Its share price has risen 22 pc in three months and 229 pc over five years. That compares with 7.9 pc and 90.6 pc for the average global investment trust.

Manager James Anderson has been in charge since 2000, while Tom Slater joined him as deputy in 2010 and co-manager in 2015.

I should stress that the managers regard it as a growth fund rather than a tech fund, arguing that Amazon is a retailer and Facebook an advertising company.

The trust trades at a small premium — meaning its share price is higher than the value of the assets it holds, due to its popularity among investors like me.

Another favourite is Polar Capital Global Technology, where co-managers Ben Rogoff and Nick Evans have been in charge since 2003 and 2007 respectively.

Given a top grade by ratings agency Morningstar, this has given a 15 pc return over three months and 198 pc in five years.

Top holdings include Microsoft, Facebook and Alphabet (Google), which between them make up just under 20 pc of the fund.

For a less concentrated technology approach, Jason Hollands has been using Natixis Loomis Sayles U.S. Equity Leaders, a fund with around 40 pc in tech firms, with Amazon, Facebook and Alibaba as top holdings alongside quasitech stocks such as Visa, and energy drinks firm Monster Beverage Corp.

Three- month returns are around 14 pc and five- year returns around 140 pc.

For a taste of more concentrated Chinese tech — home to some of the biggest companies and a burgeoning market — Hargreaves Lansdown highlights Fidelity China Special Situations investment trust with top holdings of Tencent and Alibaba.

Tech is a part of our investment lives whether through pure technology companies or those that use it, such as logistics firms and supermarkets.

This is not 1999, where companies were floating before they produced anything. These are real growth companies investing in their businesses. Some even pay valuable dividends.

As with all investment, there will be profits and losses, so the cautious may prefer to stick with general funds rather than put too many eggs in one basket.