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Tech sector popularity not abating

Technology sector investment

Companies in the technology sector will continue to present solid investment opportunities as COVID-19 changes will become permanent.

The technology sector will continue to offer solid investment opportunities due to a number of factors shaping the market, including the move by companies to consolidate changes in business models brought about by the COVID-19 pandemic, a specialist fund manager has forecast.

“The global vaccination drive is causing some to bet on a recovery and a rebound for non-technology stocks that suffered from the virus. From our perspective, many of the technological changes the coronavirus has brought about are permanent and will survive any return to a normal-type scenario. For us, a big one is working from home, which will likely boost the technology that enables remote work,” ETF Securities head of distribution Kanish Chugh noted.

“Another likely driver of technology sector outperformance is cloud computing.”

A third element Chugh identified as contributing to further growth in technology companies is the move to subscription models.

“In times past, consumers and businesses buying software and hardware would make one-off transactions, often at shops. For example, businesses buying Microsoft Office could buy the CDs one year from their local computer shop and then use that version of software for several years. These transactions were one-off and unpredictable. It required tech companies to start every year from zero. This made revenue and earnings harder to model,” he said.

“We believe that the tech industry will continue moving towards this model and the market will continue reacting positively.”

With regard to current market conditions, he recognised investors are showing interest in tech stocks because of the strong fundamentals companies in the sector are exhibiting.

“The numbers speak for themselves. The S&P 500 Technology Sector Index, which measures the share market performance of the biggest technology companies in the world, has produced a five-year annual return of 25 per cent,” he said.

“In contrast, the S&P 500 Ex-Technology Index has produced a five-year annual return of just 11 per cent.”

Further, he pointed out the S&P tech companies currently have the highest level of earnings per share and over the past five years have had the highest rate of growth in earnings per share.

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