Rebecca Stein, Investment Manager, at Charles Stanley in Oxford, looks at how tech stocks continue to dominate investment returns.
The S&P 500 ended 2020 up around 18% on a total return basis, yet two thirds of this performance was generated by the top six technology stocks which are Facebook, Amazon, Netflix, Google, Apple and Microsoft.
I’m having a lot of conversations with clients at the moment about whether or not this technology rally can continue. In this article I am going to talk about one of the main risks to technology stocks which is increasing regulation of tech firms as there is no doubt that this continues to appear on government agendas across the globe with growing concerns over privacy.
If you take a closer look at the top technology stocks, the one interesting difference with Facebook and Google is that they are offering free services, generating the majority of their revenue from advertising. We are effectively the product that they sell, with the data generated from our activities used to provide personalised advertising.
There is no doubt that the public are becoming more and more aware of privacy issues. The latest example of this is with the messaging app, Whatsapp, which is owned by Facebook. Recent concerns over WhatsApp’s data sharing with Facebook caused millions to switch to alternative providers like Signal.
Ultimately, the companies which generate their money from selling data are dependent on people still being prepared to hand over their data. There is an argument that this is here to stay because younger people are now growing up with this as the norm. However, every time the big tech companies bend the rules, they risk turning the tide in a sentiment driven market.
In the new Apple software update, which is expected in the spring, apps must ask users permission before they are allowed to track their data for advertising. A change like this is good because it puts users back in control and gives them a choice as to whether or not their data is used.
The change does have the potential to impact the revenue of companies like Facebook as its main value is the personalisation of adverts based on a person’s browsing history and activity.
For now, I think people will accept giving up some of their individual privacy in return for free services. Personalised adverts can be useful, but it’s important that companies are transparent about where their data goes and what companies are doing with it. The ‘opt in’ option from Apple is the first step to allow people to take control of their own data.
For more information on how to adapt your exposure to technology within your investments, please contact the Oxford office on 01865 987 485