Is It Too Late for Beginner Investors to Ride the Big Tech Bull Run?
The big US tech stocks, referred to collectively as the ‘Faang’ group (Facebook, Apple, Amazon, Netflix and Google-parent Alphabet), have led the equities bull run over the past several years. Anyone investing online in these companies over recent years, either directly or through funds that had them as major holdings, will have recorded strong returns. As the record highs keep coming the question has to be asked how much growth is left in the Faang play. Is it too late for beginner investors making their first forays into investing online to take advantage?
Despite a correction over the second half of March, by early April big tech had resumed its seeming unstoppable ascent in value growth. Trade war fears over June powered values to new highs as Faang stocks became a new ‘safe haven’ retreat for investors – considered among the least likely sectors to see profit and growth prospects hit by new trade tariffs imposed on materials and other goods that flow between the US, Europe and China. Gold, the traditional safe haven investment, has even seen its value drop as geo-political tremors instead sent investors scurrying for the shelter of ‘Netflix and chill’.
Any new investor who relied on the NYSE’s Fang+ index to kick start their online investing career in June wouldn’t have been disappointed. It’s returned almost 10% since the start of the month – more than enough to count for a good full-year return. That compares to a gain of less than 2% across the S&P 500 US benchmark index. Without the Fanngs, the S&P 500 would be down for the year to date.
But is there much left in the tank? Quoted in the Financial Times, State Street Global Advisors chief investment strategist Michael Arone believes that under present market conditions that is very much tied to wider conditions:
“The group has become for investors [a] safe investment with growth characteristics.…so long as the macroeconomic issues continue to percolate investors will continue to embrace Faangs”.
However, he also cautions that we may be entering a period that shows greater divergence within the group’s prospects than has been the case in recent months. In June Apple has lagged the rest, down 0.8%. Netflix has gained 18% over the same period.
Some analysts fear that big tech is now entering the ‘melt up’ phase of its bull cycle. Capital Innovations chief investment officer Michael Underhill noted:
“The smart money is heading for the exits while Mom and Pop are loading up on tech at lofty valuations”.
The problem with a melt up phase of a bull cycle is that while there is the danger of getting caught near the top as a new investor, there are good returns to be made while it’s still in process. Gains are often at their fastest rate at this point. Which makes it a tricky call for beginner investors. If there are several months left in tech growth, which may be particularly likely if trade war and other geopolitical fears continue, it may not be too late. However, there is also the danger of buying Faangs at their peak and it taking some time for values to return to present levels if there is a major correction. The good news is that beginner investors also have time on their hands so could ride out any drop.
The best case scenario would be buying in for a few months, recording a quick boost and selling before a correction. But as any beginner investor will learn, trying to time the market in this way is very difficult.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.