Tech stocks hit by discouraging results season

A host of negative shocks in the results reported by the biggest technology companies have caused managers to re-evaluate how the stocks might perform in the future.

In the past two weeks the most well-known tech brands such as Apple, Twitter, Google, Amazon and Facebook have all reported earnings.

Only Facebook managed to impress investors with its results as its tech peers struggled to justify the huge expectations placed on them by the market.

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Facebook was the best performing stock of the large-cap tech companies after it reported a significant rise in revenue, particularly from mobile advertising.

Its share price is currently 15.6 per cent higher than before its results were announced on January 29. Moreover, Facebook’s share price is now 64 per cent higher than when it was first listed on the stockmarket in 2012.

But Apple, Amazon and Twitter all disappointed investors with their results and the shares in all three fell significantly.

Apple remains the top holding for many managers in the IMA Technology and Telecoms sector and its fall of 9 per cent following its results has hurt funds in the sector in recent weeks.

Investors were discouraged by the slowdown in growth at the company, which had seen such a meteoric rise in recent years.

RCM Technology Trust manager Walter Price, whose trust is a member of the Investment Adviser 100 Club of top-performing funds, said Apple “will not achieve the growth rates it once did given its size” and expected its price to rise and fall depending on how each new product cycle was received.

He said it was still worth maintaining a weighting in it from a total return perspective, due to its potential to return cash to shareholders, but the manager cut Apple out of the trust’s top-10 holdings in January.

Stuart O’Gorman, co-manager of the Henderson Global Technology fund, said he had also been cutting back his holding in Apple during January, having added to it during the final quarter of 2013.

He had also cut the fund’s holding in Amazon during the same quarter, and that proved to be prescient as Amazon’s share price fell in January following its results. The retailer’s share price is now 15.3 per cent lower than when it announced its results.

The fall came in spite of a significant rise in profits, but Amazon was unable to match the lofty expectations of the market that had propelled the stock 50 per cent higher in the year leading up to its results.

The moves were a blow for the Pictet Digital Communication fund, managed by Sylvie Sejournet, who had added to the fund’s positions in Amazon and Apple in the fourth quarter of 2013.

At the end of December, Amazon was the biggest weighting in the fund, as the manager expected it to benefit from “a big upswing of its cloud computing services”.

But it missed Wall Street analysts’ earnings expectations because of problems with shipping items in December, which forced the company to issue a large number of refunds.