The below is an extract from Tony Boyd’s Chanticleer article ‘Why global tech stocks are the way to go in 2021′ which was originally published in the Australian Financial Review on 28 December 2020. For the full article, please click here.
While Tesla was the standout tech stock in 2020 there is strong evidence to show that outstanding investment success in global equities was not the preserve of those owning a narrow basket of tech stocks.
This marks a profound change in tech investment. There was a time, not so long ago, when investors seeking alpha (outperformance against a benchmark) only had to own all the FAANG stocks – Facebook, Amazon, Apple, Netflix and Google – in order to achieve market-beating returns.
Today, astute fund managers focused on tech disruption have been able to deliver market-beating returns while owning only one or two of the FAANGs.
A good example is the Loftus Peak Global Disruption Fund, which is on track to deliver a 40 per cent return for the 2020 calendar year. It was up 39.4 per cent in the year to November 30, or about 33.6 per cent better than its benchmark, the MSCI All Countries World Index as measured in Australian dollars.
According to a Loftus Peak newsletter going out to fund members later this week, its top 10 contributors to the 40 per cent return were: Roku, Apple, Qualcomm, Amazon, Xilinx, Tesla, Nvidia, Tencent and CrowdStrike.
Alex Pollak, Loftus Peak’s chief investment officer, says Xilinx and Nvidia are classic examples of companies benefiting from the acceleration of the use of faster and more efficient technology across all sectors of the economy.
He says the fact that Nvidia’s market capitalisation at $US321 billion ($421.7 billion) is now one and a half times larger than Intel’s market cap is directly attributable to Intel’s failure to keep pace with the change in semiconductor chip advancement.
“Intel has really fallen down on the next process node for 10 and seven nanometer,” Pollak says.
“The miniaturisation and, therefore the enhanced performance at lower power, is increasingly a problem, which has meant that companies that are in the acceleration game, like Nvidia and Xilinx are creating the performance leaps that otherwise couldn’t have happened.”
‘It lifts all companies’
Pollak, who has delivered a 26.8 per cent per annum return over the past five years, believes US President-elect Joe Biden will do a “chunk of stimulus” to get the US economy restarted.
He points to an interview Biden did with New York Times columnist Thomas Friedman in early December as an indicator of what might happen in 2021.
“I want to make sure we’re going to fight like hell by investing in America first,” Biden told Friedman. Biden sees areas such as energy, biotech, advanced materials and artificial intelligence as being ripe for large-scale government investment in research.
“We should be spending $20 billion to put broadband across the board,” Biden told Friedman. “We have got to rebuild the middle class,” but “especially in rural America”.
Pollak says increased investment in digital infrastructure in the US will have an impact on more than just tech stocks.
“Technology keeps getting kicked up further and further in terms of driving all of the things that are around us,” he says.
“At some point, all that increased demand has to find its own outlet through better and faster chips, more acceleration of digital infrastructure, which ultimately means more Uber cars driving around, more packages being shipped by Amazon. This doesn’t just lift our companies, it lifts all companies.”
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