The ‘smart money’ is turning against tech

Once-popular stocks are no longer the hottest buys in town, reports Sam Benstead

Professional stock pickers have turned against technology companies, whose shares soared last year as our lives moved online, prompting experts to warn DIY investors not to get caught out by the turning of the tide.

Bank of America, which tracks the trading patterns of investors who oversee $630bn (£450bn), found that $ 15.8bn had been withdrawn from shares in American “growth” companies, such as technology giants, in the past five months.

Stocks such as Amazon and Microsoft, which surged in the pandemic, have quickly fallen out of favour.

In July last year, three quarters of fund managers named American tech companies as the most “crowded” trade in stock markets, the highest reading ever recorded by Bank of America’s survey.

Now those stocks are being shunned. UBS, the Swiss bank, calculated that the five least popular companies to buy were all technology growth stocks: Apple, Amazon, Tesla, Microsoft and TSMC, the computer chip maker.

In each case, fund managers hold a smaller proportion of their shares than their contribution to the relevant stock market index, a sign of scepticism on future returns.

Paul Winter, who wrote the UBS research, said there was a clear momentum shift against technology firms, which were once heavily in demand, to which private investors should be alert.

“Professional investors should be considered the ‘smart money’, as their returns typically beat those of DIY investors, so taking note of what the pros are doing can make sense,” he said.

As the tide has turned against technology, professional investors have been switching to bets on “value” companies: stocks that were hit hard by the pandemic but are bouncing back as vaccination programmes promise the reopening of economies. Investors have poured $14bn into American value stocks over the past six months, according to Bank of America.

But UBS found that the stocks that had supplanted technology companies as the most “crowded” trades in global stock markets, as measured by the weighty stakes held by fund managers and the “buy” ratings from analysts, were more eclectic.

They included LVMH, the fashion group that owns brands such as Christian Dior and Givenchy, as well as Volkswagen and Walmart, the American retailer.

Volkswagen shares have risen by 60pc in the past six months as the car maker has increased deliveries of electric vehicles. LVMH shares have gained 44pc over the same period thanks to strong demand in Asia. Terry Smith, who runs Britain’s largest stock market fund, invested at the end of last year.

However, Mr Winter warned DIY investors against simply following professionals into those popular stocks. He said these shares would be vulnerable to sharp falls on any bad news, as heavyweight investors would quickly unwind their positions.

Mikhail Zverev, a global stock picker at Aviva Investors, said he searched for companies outside the limelight.

“We look for companies that are non- consensus bets. What we are after is businesses that are improving but which other investors have not cottoned on to and bid up prices,” he said.

One of his top bets is on semiconductor stocks, which are being shunned by other professional investors, according to the UBS research. “Computer chips are essential for software to run. Every part of our lives is becoming more digital so this is a technology area where demand is growing,” he said.

He added that other investors were also ignoring the role utility companies would play as renewable energy took off.

“Investors are missing the opportunity at the moment in companies such as National Grid and Enel, its Italian counterpart. They will play a vital role in getting renewable energy into the economy,” he said.

“As everything electrifies, demand will increase for grids.”