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Price moves away from flagging Fangs

Price moves away from flagging Fangs

Allianz Technology Trust manager Walter Price is placing his faith in attractively valued but moderately appreciating stocks after sentiment turned against last year’s market favourites.

Mr Price said while the popular and fast-growing Fang stocks – Facebook, Amazon, Netflix and Google – made a significant contribution to performance in 2015, the picture had darkened this year.

Properly weighted, the four stocks returned 64.4 per cent last year but had declined 14.4 per cent by February 10. Amazon fared worst, falling 24.3 per cent, while Facebook led the group, falling only 2.6 per cent.

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Mr Price blamed the technology stalwarts’ fall on the general equity sell-off, which he said was the result of investors adjusting to an “extended period of low growth”.

He said in the first half of 2015 investors were “not fully appreciating the impact of an interest rate hike in the US, when the dollar is strong and many emerging economies are in serious recessions”.

This, he said, had led to a “reset period” from the middle of the year, when investors began to adjust expectations and technology stocks were caught up in the action.

The manager said popular stocks such as the Fangs had, in essence, fallen victim to their own success. “Investors crowded into the Fang stocks, so when they went risk-off, many of those stocks – particularly Amazon and Netflix – were sold down very hard,” he said.

“We own the four but not much Netflix, because they are investing in international markets and are [only] going to be breaking even this year. We are waiting for a time to increase that holding.”

As a result of this Mr Price, who groups his holdings into three categories, has now adjusted the trust this year to focus on stocks with cheaper valuations but a more modest outlook for growth.

Giants such as Microsoft and Apple, which he categorises as “attractively valued with optionality”, and which offer a potential total return through dividends or share buybacks, make up 40 per cent of the portfolio.

“We have increased the value position in the trust,” he said. “These companies aren’t growing very fast but I think they are great annuities and pay out a lot of the benefits of their cash generation to their shareholders”.

Companies in the second group, those with current and projected earnings growth of more than 15 per cent such as Visa and Google, make up another 40 per cent.

But stocks in the high-growth category, including names such as the Fangs, and information security company Palo Alto Networks, now represent only 20 per cent.

However, despite the sell-off, he said: “We are believers in all four of those companies, and we believe all will rebound in the latter part of 2016.”

Mr Price’s £137m vehicle lost 5.6 per cent over the past year but returned 56.9 per cent over three.

This compares with -3.5 per cent and 42 per cent for the Dow Jones GL World Technology index, according to FE Analytics.