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Asset Allocation

Hard-Charging Tech Stocks May Slow for the Rest of 2023, Ned Davis Says

Technology leaders are off since mid-July, amid new investor wariness and concerns over their high valuations, the research firm contends.

By Larry Light




Technology, a sector practically synonymous with momentum investing, has a good record of continuing its strong upward movement for the rest of the year, if it has been barreling upward through July, says a well-regarded research firm. But 2023 may be the exception, the firm, Ned Davis Research, warned in a research paper.

In the three times since 1972 (when Davis started compiling the stats) that the S&P 500’s technology sector had outperformed the index as a whole by 20 percentage points or more through July, there was a strong tech finish for the year, according to the firm’s Rob Anderson, U.S. sector strategist, and Thanh Nguyen, senior quantitative analyst. But in 1995, tech flagged for the rest of the year because of too-high valuations and newfound investor wariness, they observed.

And that 1995 scenario  is shaping up to be the case this year, in their report’s estimation: “For now, we are maintaining our March ‘23 overweight of technology based on seasonality, sentiment, and a bullish sector model, but mega-cap weakness and valuations have the sector on a short leash for a downgrade.”

The index finished July up 19.5% and its tech sector was ahead 40%, Anderson and Nguyen wrote. The eight largest S&P stocks, which Davis dubs the Elite Eight (they all happen to be tech-oriented) have fallen 6% from their July 18 collective high, and the rest of the index has been flat.

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The paper pointed at Apple and Microsoft, which have the top two largest equity valuations, for their even steeper falls: No. 1 Apple peaked on July 31 and dropped 9.2% through last Friday, while No. 2 Microsoft tumbled 10.6% since its July 8 high.

Meanwhile, investor sentiment has edged downward for tech stocks, per the Hulbert Newsletter, which polls investors. The Davis report stated that Hulbert’s “sentiment composite has fallen into the neutral mode and is at its lowest reading since mid-March.”

The tech sector’s price/earnings ratio is the highest it has been, compared with the S&P 500, since 2004, the paper found. Valuations for the Elite Eight are at their highest since November 2020, amid the market’s snapback recovery from its pandemic swoon.

The sector’s outsized gains previously this year have drawn comparisons to the Internet bubble that popped in 2000, the report noted, adding: “the key difference is that the companies of today are extremely profitable.” And, Anderson and Nguyen wrote, those strong earnings should buoy the tech sector over the long run, but expect some bumps the rest of the year.


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Home > News > Asset Allocation > Public Equities Drag Orange County Pension Investments 7.8% Lower in 2022
Asset Allocation

Public Equities Drag Orange County Pension Investments 7.8% Lower in 2022

The portfolio’s market value dropped by more than $2 billion last year to $20.2 billion.

By Michael Katz




The Orange County Employees Retirement System’s investment portfolio lost 7.8% in 2022, as public equity losses helped drag the market value of its portfolio down to $20.2 billion from $22.5 billion at the end of 2021, according to its annual comprehensive financial report.

OCERS also reported that its annualized returns, net of fees, over the trailing three-, five- and 10-year periods were 6.2%, 6.1% and 6.9%, respectively, as of year-end 2022.

The pension fund’s global public equity portfolio fell 18.5% during the year, with U.S. equities tumbling 19.1% and non-U.S. equities dropping 14.7%, while emerging market equities were the worst-performing asset class, diving 25.1% in 2022. At the same time, the fixed-income markets failed to provide a safe port in the storm, losing 10.5% during the year.

OCERS blamed the public market losses on “persistently high inflation” and Russia’s invasion of Ukraine. It also said that as inflation remained well above expectations throughout the year and central banks ratcheted up interest rates, it “brought an end to more than a decade of easy money Federal Reserve policy.”

Real assets were the top-performing asset class for the pension fund, returning 18.7% during the year and easily beating its benchmark’s return of 10.98%. Within the asset class, private real assets returned 24.5%, as energy and infrastructure assets benefitted from high inflation, and the real estate portfolio gained 14.2%, thanks to a strong performance from the industrial and multifamily sectors.

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Risk mitigation assets returned a shade more than 7%, which trounced the benchmark’s 0.24% loss for the year. Meanwhile, the pension fund’s private equity investments returned 0.54%, underperforming their benchmark, which returned 2.52% last year.

The pension fund noted that because it is customary to report private market performance on a quarterly lag, its year-end performance for many private equity, private credit and private real assets managers will reflect returns as of the end of 2022’s third quarter.

OCERS’ asset allocation as of the end of 2022 was 44% public equity, 16% private equity, 14% real assets, 9% risk mitigation, 8% core fixed income, 7% credit and 2% cash and cash equivalents.


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