At Canada Life Investments, we have long been bearish on a number of the US technology stocks on valuation grounds. Companies such as Alphabet (Google’s parent company), Amazon and Facebook are investor favourites and amongst the largest 10 stocks in the US equity market. However, what has been behind their recent sell-off?
The LF Canlife Global Equity Fund has been managed by Mike Willans, Head of International Equities, with the support of the Canada Life Investment’s international equities team since January 2004. Mike adopts a macro-driven process, keeping a close eye on economic indicators. This includes determining the relative cyclical, growth or defensive bias of the Fund within the regional matrix.
Much is written about the ‘FANG’ stocks (Facebook, Amazon, Netflix & Google) but it is actually Apple, Alphabet (Google’s parent company), Amazon, Facebook and Microsoft that are amongst the largest 10 stocks in the benchmark. These companies are investor favourites and, in aggregate, they are holding up the US equity market in 2017. This is because underneath the 16.9% total return figure, the market is more in turmoil than many investors think.
Many of today’s younger fund managers – for example those who started their careers in 2007 or later – have only known an environment in which growth equities have outperformed value equities. Indeed, many industry discussions at conferences we attend discuss the view that growth is the only way forward, particularly in the United States. Many analysts in particular are unable to fathom why anyone would adopt a value bias, in any circumstance!
It is normal to be seduced by headline performance figures in an attempt to judge fund quality. Typically, the industry focuses on cumulative three and five year performance figures when screening funds for selection. However, we believe there is a different way to assess processes and outcomes, the persistency of returns.