BRING ME THE BLEACH: IN­VESTORS SEEK STA­BIL­ITY AS STOCKS FALL

Techlife News - - Summary -

Good­bye iPhones and Face­book feed. Hello power plants and bleach.

Since stocks be­gan tum­bling two months ago, in­vestors haven’t aban­doned the mar­ket. At least, not all of it. In re­cent weeks, as they’ve pulled money out of funds that in­vest in gogo tech­nol­ogy com­pa­nies, they’ve also been buy­ing util­i­ties, com­pa­nies that make ev­ery­day ne­ces­si­ties for con­sumers and other stocks that tend to have smaller swings in price than the rest of the mar­ket.

It’s part of a big shift in in­vestor be­hav­ior as fears about ris­ing in­ter­est rates, a global trade war and slow­ing eco­nomic growth around the world have roiled mar­kets. The S&P 500 plunged as much as 2.2 per­cent Tues­day, with tech­nol­ogy stocks again suf­fer­ing par­tic­u­larly sharp losses, and the in­dex has lost nearly 10 per­cent since set­ting its record on Sept. 20.

Tech­nol­ogy stocks’ fall marks a big turn­around from ear­lier this year, and from much of the bull mar­ket that be­gan nearly a decade ago.

Af­ter lead­ing the mar­ket higher on the backs of their strong profit growth, Face­book and other big-name tech com­pa­nies have re­cently stum­bled on con­cerns that in­creased gov­ern­ment reg­u­la­tion will dent their prof­its, on top of all the other con­cerns drag­ging on the rest of the mar­ket.

Ap­ple has slumped par­tic­u­larly hard on fears that its new­est crop of iPhones isn’t as pop­u­lar as ex­pected af­ter phone-part sup­pli­ers gave dis­cour­ag­ing fore­casts. Ap­ple has plunged 19.6 per­cent since the S&P 500 set its record two months ago, nearly dou­ble the loss of the in­dex. Ama­zon, the third-most valu­able U.S. com­pany af­ter Ap­ple and Mi­crosoft, has fallen 23.1 per­cent over the same time, dur­ing which it gave a fore­cast for rev­enue growth this hol­i­day sea­son that fell short of Wall Street’s high ex­pec­ta­tions.

Af­ter their years of eye-pop­ping re­turns, those stocks had be­come some of the most pop­u­lar to own among hedge funds, mu­tual funds and other in­vestors. But just as they bought the stocks to­gether on the way up, in­vestors are now head­ing for the ex­its en masse as well.

“There’s no doubt that tech com­pa­nies are widely owned, peo­ple have made a lot of money on them and we’re fi­nally see­ing for the first time where the ro­ta­tion is hav­ing some legs,” said Nate Thooft, se­nior port­fo­lio man­ager at Man­ulife As­set Man­age­ment. “They’re sell­ing the win­ners and re­de­ploy­ing the money some­where else.”

For now, at least, that some­where else has been ar­eas of the stock mar­ket seen as hold­ing stead­ier dur­ing eco­nomic down­turns. Last week, for ex­am­ple, in­vestors plowed $1.47 bil­lion into ex­change-traded funds that fo­cus on util­ity stocks. The think­ing is that util­i­ties’ cus­tomers

will con­tinue to turn on their lights and buy power re­gard­less of how many tar­iffs get placed on Chi­nese goods.

Util­ity stocks have not only held up bet­ter than the rest of the mar­ket in re­cent weeks, they’ve been among the few ar­eas to thrive. Shares of Duke En­ergy, Xcel En­ergy and Amer­i­can Elec­tric Power have all climbed more than 9 per­cent since the S&P 500 be­gan its down­turn af­ter Sept. 20.

Be­sides util­i­ties, in­vestors have also been putting money into real-es­tate stocks and com­pa­nies that make ev­ery­day items for con­sumers, such as Church & Dwight. The maker of Arm & Ham­mer bak­ing soda and Ox­i­clean stain fight­ers has climbed 8 per­cent over the last two months. Clorox, which last month re­ported stronger profit than an­a­lysts ex­pected, is up 5.6 per­cent.

All these com­pa­nies are com­mon fod­der for “low-volatil­ity” ETFs that have surged in pop­u­lar­ity in re­cent weeks as in­vestors seek out stocks that have his­tor­i­cally had smaller price swings than the rest of the mar­ket. Last week, $1.3 bil­lion went into “low-volatil­ity” ETFs.

At the same time, nearly $500 mil­lion left tech­nol­ogy stock ETFs. It’s a huge about-face in in­ter­est. As re­cently as two months ago, these ETFs had at­tracted $8 bil­lion in net in­vest­ment for 2018. But sub­se­quent waves of sell­ing mean they’re now down to $525.9 mil­lion in net in­vest­ment for the year, ac­cord­ing to Jef­feries.

“These things had out­per­formed the S&P by a mile over the last three years,” said Mark Hack­ett, chief of in­vest­ment re­search at Na­tion­wide In­vest­ment Man­age­ment. But that’s changed now. “On good days they’re not the lead­ers, and on bad days they’re the lag­gards.”

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