Schroders manager warns of tech backlash

Schroders manager warns of tech backlash

Big tech investments could face a backlash, a Schroders portfolio manager has said.

Katherine Davidson, portfolio manager for global and international equities at Schroders, warned the soaring scale, wealth and influence of the internet giants has led to growing scrutiny from society and regulators.

As a result, this raises concern over the sustainability of brands such as Google, Facebook and Amazon.

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This comes after Google was fined for market abuse in the EU and Silicon Valley heads were hauled in front of the US Senate and British Parliament to answer for the abuse of their platforms by extremists and the potential role of Russia in Western elections. 

Ms Davidson said: "In recent months  it has felt like the tide is turning against big tech.

"Add concerns over elevated valuations and a few sharp drops in the tech-heavy Nasdaq index, and it’s been a nail-biting few months for investors with significant positions in the ‘FAANG’ stocks of Facebook, Amazon, Apple, Netflix and Google. Positioning and survey data suggests this includes most long-only managers.

"As investors we have spent a lot of time debating the positive and negative effects of these businesses. What is their impact on wider society? Is there a long-term risk from a growing regulatory burden?"

Ms Davidson said these companies often have a large degree of market control, which has made regulators "twitchy". 

She added: "We see the most likely risk as taking the form of regulation on the one hand and or consumer backlash on the other."

Ms Davidson added that tech giants have also been accused of stifling innovation by gobbling up promising start-ups and monopolising the best talent.

She said: "Critics point to the precipitous decline in the number of start-ups in recent decades, with most years seeing more companies fail than start.

"Disruptive competition cannot emerge if the tech giants are allowed to subsume all possible rivals. We also have more sympathy with the view that flouting of copyright laws by YouTube in particular is damaging to the creative industries."

She added Schroders would continue to monitor developments and remain wary of tail risks that could threaten the long-term durability of their business models. 

But Samuel Blanning, financial adviser from Bristol-based Star House Financial Services, said stricter regulation is unlikely to have a big effect on the big tech industry. 

He added: "When you invest in shares which trade at several hundred times their profit, it doesn’t take regulatory action to make the share price wobble.

"Any investor who has 'significant positions' in an individual stock will always have something to worry about; if they are concerned, perhaps they should consider whether they are diversified enough.

"Personally, I think the biggest backlash to worry about isn’t from regulators, it’s from fashion. A teenage club mate of mine said recently that ‘we only use Facebook to let our parents know we’re still alive’. Her generation are all on Snapchat.