Wellesley WeeklyWatch – Tech stocks drive forth

06 April 2021

Stock Take

Strength in numbers

The closing of the four-day trading week saw US stocks enjoy record levels, with technology stocks experiencing a revival.

This performance was further strengthened by President Joe Biden’s launch of a $2 trillion infrastructure plan last week. While its outlook is wide-ranging, the plan targets areas such as broadband, scientific research and electric vehicles – all of which are set to jump-start the technology sector.

In the meantime, the return on the benchmark 10-year US Treasury note dropped towards the end of the week. This number has been consistently climbing in 2021, having an impact on the prices of many financial assets, and its growth to date seems to have been hanging over the values of certain technology stocks. So, last week’s drop was a good sign for many technology shares.

Time is of the essence

That said, many investors forecast that it will keep increasing this year – perhaps an indication of a more subdued mood for the fast-growing technology companies that have produced such robust returns in recent times? This could, however, be a positive, given the lofty levels of tentative enthusiasm that have recently represented the investing landscape.

Johanna Kyrklund, Group Chief Investment Officer at Schroders and Manager of the St. James’s Place Managed Growth fund, proposed:

“The FOMO market is over; it’s a more broad-based opportunity set now and a more ‘normal’ investing environment. Investors will be able to bide their time, waiting for openings.”

This ‘fear of missing out’ (otherwise known as ‘FOMO’) illustrates the psychology behind the frantic price movements in some stocks that are favoured among amateur online traders. It was a trait of the GameStop spiel in January and February this year, where the share price of a struggling US gaming retailer took an upwards swing as investors piled into its shares in anticipation of a sharp increase. While some of them were correct, others found themselves on the losing side when the share price then dropped.

With an economic recovery looming, it’s likely that markets are entering a calmer phase, suggested Kyrklund.

“In today’s markets a more boring approach – favouring diversification and judiciousness over more racy assets – may be what’s required,” she added.

Archegos – lessons learned?

One of the headlines to feature on financial markets last week was the implosion of investment house Archegos Capital Management. Its higher-risk strategies entailed borrowing substantial sums to purchase financial instruments related to publicly traded companies.

The news has already affected other financial services businesses, with several investment banks reporting anticipated losses, or declines, in their share prices. There was also concern that the news could mean wider disruption in the market, but the upshot to date seems to be largely limited to companies that had dealings with Archegos.

Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund, stated:

“There is no need to be concerned that this will lead to broader contagion. In fact, in discussions with policymakers over recent days, there is a thought that this may serve to tighten up regulation and risk management practices in areas of weakness.”

He went on to say that, while the wider consequences might be limited on this occasion, that doesn’t mean there are no lessons for investors.

“As Archegos reminds us, greed can often end in tears and investing should not be confused with the pursuit of chasing short-term speculative gains,” added Dowding.

COVID-19 curbs

Despite the fact that, broadly speaking, the COVID-19 outlook is looking positive, there was news last week that showed it continues to be problematic for the short term. Most notably, several European countries have implemented lockdown measures again, in an attempt to halt the spread of a new surge of cases.

In France, President Macron declared a four-week national lockdown on Wednesday last week. Likewise, Italian lockdown restrictions will be in place until the end of April. Due to these measures, Pope Francis chose to deliver his Easter message to a moderate gathering inside St. Peter’s Basilica, rather than to large crowds in the square outside.

Wealth Check

According to new research from Aviva, two thirds of investors want increased transparency in where their pension is invested and the environmental impact it is having.1

Fears regarding climate change have increased dramatically among retail investors, with almost three quarters (73%) of clients believing they have a duty to tackle climate change.2

Weighing up the environmental impact of their investments is a must for investors, with research revealing that our savings can have 27 times more impact on our personal carbon footprint when invested sustainably, compared to other reduction activities.3

In part, the impact is due to how long funds are invested for – saving for a comfortable and financially secure retirement should span decades because your investments grow and compound over time. Hence why responsible investing is a defining trait of our approach to investment – one that will be fundamental in aiming to generate returns over the long term as the knock-on effects of climate change become more apparent.

Sam Turner, Responsible Investment Consultant at St. James’s Place, says:

“Incorporating responsible processes into our investment decision-making provides the opportunity for us to use money as a force for good, and crucially, it makes investment sense.”

Just one of the ways investors and wealth managers can collaborate to ensure financial well-being is by investing in meeting your life goals while having a positive impact on the planet. If you’re curious as to how we ensure your funds work for the greater good, contact your Wellesley financial adviser.

Sources:

1,2 Source: Survey of 1,498 adults by Ipsos MORI on behalf of Aviva, December 2020

3 Source: Nordea, Sustainable Finance at Nordea, 2017

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The Last Word

“We have received overwhelmingly, so let us give generously.”

– Justin Welby, Archbishop of Canterbury, urges Britons to be more generous in his Easter sermon.

The information contained is correct as at the date of the article.

BlueBay and Schroders are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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