Technology stocks have carried markets this year – but this single event will kill them, according to one fund manager.
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Technology shares have carried the share market out of COVID-19 misery both in Australia and the US.
The Nasdaq Composite Index (NASDAQ: .IXIC) itself rose 75% since the COVID-19 trough before settling down a bit this month.
So naturally the big question on everyone’s mind is: When will the rally stop?
No expert, let alone an amateur punter, has a crystal ball.
But one fund manager reckons he has a sure-fire signal that will indicate when fortunes have peaked.
“The biggest risk… for the tech sector is when interest rates increase,” said Wilson Asset Management lead portfolio manager Oscar Oberg.
“If you see that, that’s a sign to get out of that space.”
Oberg told an investor call that what’s happened to tech stocks the last 6 months is not sustainable.
“You can’t just look at companies like Afterpay, which went from $8 to $90, and think that’s the new normal.”
Calling the ‘end of tech’
Wilson has been incorrectly “calling the end of the tech market for the last 3 years”, admitted Oberg.
Its flagship listed investment company (LIC) WAM Capital Limited (ASX: WAM) even reduced its exposure to tech this year from about 10% to 6%.
“The reason we have been wrong is purely because of where interest rates are,” Oberg said.
“Interest rates, as we all know, are at record lows. That increases valuations and that’s why we’ve seen this momentum in companies like Tesla and Salesforce.”
Wilson Asset Manager founder and chair Geoff Wilson said the current situation reminded him of the tech bubble in the late 1990s.
“I’ve been thinking back to 1999–2000 when we had the ‘tech wreck’,” Wilson told investors.
“There wasn’t a specific event that created the tech wreck… It was just over-evaluations, then heat coming out of the market.”
Wilson forecast that current tech investors would have to prepare for a “reasonable-sized adjustment”.
Wilson Asset Management operates 6 LIC products, with more than $3 billion under management.
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Tony Yoo owns shares of AFTERPAY T FPO and WAM Capital Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Salesforce.com and Tesla. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.