Experts have shrugged off fears that the recent tech sell off could mark the start of a significant fallout in technology stocks, urging investors to stick with their allocation.
The Nasdaq Composite index, heavily exposed to US tech stocks such as Apple and Microsoft, has plunged in its biggest decline since the March crash.
It tumbled 10 per cent in a week (from September 2 to September 8) but has since rallied slightly to settle on 11.173 points (September 15), still down on its 12,056 peak of September 2.
The sell off began when Tesla, part of the Nasdaq, was passed over for inclusion in the S&P reshuffle and the electric-car company’s soaring stock price began to dwindle, although high valuations and share splits in both Apple and Tesla were also shaking investors.
But experts have remained cool as to what the sell off means for investors holding technology in their portfolios.
Ben Seager-Scott, head of multi-asset at Tilney, said: “These moves, to my mind, should not in themselves be buy or sell signals.
“Rather, investors should take a look at fundamentally how they view the stock, and whether they think the fundamental prospects are positive or negative and base their view on that.”
Adrian Lowcock, head of personal investing at Willis Owen, agreed. He said it was “hugely difficult” to decide if the sell off was a bubble bursting or whether technology has further to run in the short term.
He said: “Technology is likely to be a major theme over the next decade and offers attractive growth for long term investors, but at present many investors' expectations of a big shift in the next couple of years are extremely high opening them up for disappointment.
“The best course of action is to have a diversified portfolio with some tech exposure, allow the fund managers to re-allocate when they see fit and focus on the long term. Don’t try and manage your tech allocation directly.”
Although warning investors needed to be “mindful” of short-term valuation spikes in tech stocks, Ben Yearsley, investment consultant at Fairview Investing, said technology should form part of most investors’ long-term portfolios.
He added: “On a ten-year projection, do you need to time your entry point or should you just own?
“I’ve been invested in tech funds for more than a decade now and despite the recent spike, I’m not taking profit as I believe tech is integral to everyday life.”
As the clear beneficiaries of the global pandemic, tech stocks have bolstered the US markets’ recovery from the coronavirus crash.
Their incredible rally — a continuation of stock prices which have been on the upwards trajectory for the past few years — has prompted many to argue that tech has been massively overvalued and would, at some point, crash or ‘burst’.
Alistair Cunningham, of Wingate Financial Planning, said: “I’ve been saying tech is massively overvalued for some time.
“[I am] concerned many individuals have way too much holding in tech and that many investors have been chasing the tech bubble due to the perception of ever increasing returns.”
However, Mr Cunningham said the markets were a “long way” from a proper correction.
Scott Gallacher, chartered financial planner at Rowley Turton, agreed, adding that it was a case of “when” the tech sell off happened rather than “if”.
But he was less fearful. He said: “I would hope that most advisers’ clients would be relatively immune to this, in that they should have well-diversified portfolios that are not overly exposed to any one area.
“Consequently there should be no need for most of these people to ‘react’ to this.”
imogen.tew@ft.com
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