For more than a year, beating tech stocks has been difficult, but not impossible. Investors who have seen them go up may want to participate.
Despite this, many funds and individual investors still support the technology. The Magnificent Seven and other tech stocks don't necessarily move in lockstep, so while that's not necessarily a risk in and of itself, it's a little nerve-wracking. Concerns about bubbles aside, stocks already have a lot of capital in them, so it's possible that there will be less money. Given the rapid rises in some stocks, it seems inevitable to have extra cash to buy pauses and dips.
Buy-and-hold fans may also need a strong stomach. As Adam Parker, founder of TriVariate Research, points out, high-quality growth stocks, a staple of long-term investors, are currently exposed to far more volatility than other stocks.
“Over time, the market capitalization of the technology sector, which belongs to the high-quality growth group, has steadily increased to nearly half of the total,” he writes. “The risk is now increased because the track record of quality growth has paid off… because the beta of quality growth technology stocks is 40% higher than the beta of quality growth stocks in other sectors. is.”
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Beta is a measure of volatility for an index. A stock with a beta value above 1.0 is likely to be more volatile than the overall market, while a value below 1.0 means it is less volatile.
According to Parker's calculations, the current market cap of about $10 trillion is worth more than 1.2 beta. The tech sector accounts for half of the market capitalization of the top 3,000 US stocks with beta values of 1.2 or higher.
“So we have more market than ever in high-beta, high-quality technology growth stocks,” he points out. “As long as there are market corrections…high-quality growth technology stocks with high betas that can make them particularly vulnerable to large corrections.”
He highlights nine stocks in the tech space with betas above 2.0 that could underperform the market if a correction occurs: Palantir Technologies
,
UiPath
,
lambus
,
GitLab
,
Shopify
,
monolithic power system
,
Teradyne
,
to innovation
,
and Duolingo
.
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Of course, as the market recovers from the April selloff, a correction could be a long way off, and if it does come, it could be short-lived. Nevertheless, for investors whose pain tolerance has decreased during bull markets, it may be worth remembering that fast-growing stocks can be just as noticeable on the way down.
Email Teresa Rivas at teresa.rivas@barrons.com.
