Welcome Big Tech Back to the Head of the Class

Big Tech is the comeback kid of the moment, after its long-running rise sputtered during the first quarter and those old stalwarts, cyclicals, ascended in the re-opening trade. The tech titans have caught up, and are going to really cook from now on, as they reassert their leadership of the market, says Barclays.

The pandemic recovery trade has run its course, and now it’s time to get back into Big Tech stocks, according to the bank’s top US analyst.

“We believe market leadership is likely to change from cyclical to secular growth stocks as the COVID recovery trade has mostly run its course,” Maneesh Deshpande, head of US equity research at Barclays Capital, said in a note. “Secular growth stocks look favorably positioned to benefit from the digital transformation that got accelerated during COVID.”

Last year, the tech big guys romped, as the Nasdaq 100 shot ahead 47.6% while the broad S&P 500 increased 16.2%. As of Wednesday’s close, the S&P was up 14.4%, with the Nasdaq index not far behind, at 12.9%, a big improvement since March.

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Value and cyclical stocks have had a nice 2021. But a number of Wall Street analysts, including Deshpande, think their pandemic bounce back has already been priced into those recovery names.

“Following positive news on the vaccine front in November 2020, as the path to a cyclical economic recovery in 2021 became clearer, there was a rotation that began away from stocks with positive exposure to COVID-19 and into stocks with negative exposure to it,” Deshpande wrote. “We think this rotation is now complete.”

Tech names, particularly the largest ones, are well-positioned for the rest of the year owing to the speed-up of digital transformation during the pandemic, Barclays argued. The whole panoply of tech advances, in this view, has embedded itself into Americans’ daily lives and demand for them will only grow. That includes e-commerce, digital advertising, work-from-home systems, and cloud infrastructure, the bank said.

The Barclays report zeroed in on FANMAG stocks—those mega-cap monsters that last year so dominated the field. Facebook, Amazon, Netflix, Microsoft, Apple, and Google-parent Alphabet are enormous competitors. Plus, the bank said, they enjoy the advantages of being relatively cheap, at least compared to 2020.

“We prefer FANMAGs as their valuations have declined to 2019 levels,” Deshpande said, referring to before they really took off in 2020.

Of these, the best prospects lie with Alphabet, Amazon, and Microsoft, he said. “We expect these stocks to hold on to their COVID market share gains and continue to benefit from the acceleration of digital transformation,” Deshpande wrote.

His reasoning: Google will benefit from rising digital ad revenue as the economy improves. Amazon’s solid position in e-commerce and cloud computing services will continue to build its lead. Microsoft will benefit from people who continue to work from home and also those who go back to the office. Thanks to its software and cloud business, it has benefited from the work-from-home shift during the pandemic and also could see a lift as workers return to offices.

Netflix and Apple are the exceptions to this rebound tale thus far, as both are flat for the year. Netflix has posted slower than expected subscriber gains, amid strong challenges from the likes of Disney Plus and HBO Max. Apple’s centerpiece iPhone has seen sales lag, as consumers wait for an upgrade tied to 5G.

Of course, should inflation keep rising, it wouldn’t be good news for the tech hotshots. Higher rates mean lower earnings in the years ahead for them.

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Tags: Big Tech, COVID-19, FANMAG stocks, Maneesh Deshpande, Nasdaq 100, S&P 500, tech stocks, vaccines

The UK’s Insolvency Service has barred Darren Reynolds, director of financial advice company Active Wealth, from being a director for 13 years for failing to act in the best interests of the company’s British Steel pension clients. The bar prevents him from directly or indirectly becoming involved in the promotion, formation, or management of a company during that time without the permission of the court.

The agency said that between 2014 and 2016, Reynolds advised at least 288 clients to transfer more than £23 million (US$31.7 million) from their defined benefit (DB) pensions into self-invested personal pensions (SIPPs), which invested their money in a portfolio of investments in high-risk corporate bonds called Portfolio Six.

The portfolio’s high-risk investments were described as “relatively illiquid” and “unregulated,” and were specifically excluded from the protection offered by the Financial Services Compensation Scheme (FSCS). Additionally, the bonds were only available for direct investment to experienced high-net-worth or sophisticated investors, or those who had received advice from an expert who had the experience and knowledge to understand the risks.

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In his defense, Reynolds said Active Wealth relied on due diligence conducted by Portfolio Six’s fund manager; however, the Insolvency Service said he either knew or should have known that the fund manager was neither impartial nor independent, as its directors were associated with companies within Portfolio Six.

At the time of its liquidation, Active Wealth’s clients had claimed more than £10 million in compensation from the FSCS as a result of advice received. However, the Insolvency Service said that because individual claims were limited at £50,000, the actual loss suffered by Active Wealth’s clients is more than £24 million.

“This is a very sad situation for these victims who believed Darren Reynolds and his company were providing professional investment advice in their best interests but instead placed their future financial security in high-risk and unsuitable investments,” Rob Clarke, chief investigator at the Insolvency Service, said in a statement. “Thirteen years is a significant ban and removing Darren Reynolds from the corporate arena will protect other investors from further harm for a lengthy period of time.”