US Technology stocks deliver a strong first quarter
The tech-heavy index gained 16.8% in the first three months of 2023 which marked the Nasdaq's strongest quarter since the second quarter of 2020, when tech stocks led a sharp rebound from lows reached at the start of the Covid-19 pandemic.
It hasn't been smooth sailing!
The start to the year saw the Fed continue to increase rates in a bid to curb inflation. March also saw the failure of two US banks. Silicon Valley Bank (SVB) and Signature Bank both collapsed, creating increased volatility in markets globally, as well as panic among many bank shareholders. This saw a bank sell off and heightened pressure on the financial system. Swiss banking giant Credit Suisse was also handed a lifeline after Swiss regulators all but forced a merger with UBS, else a third large bank could have face collapse in the first quarter of the year.
The environment did not bode well for returns . However, US technology stocks had a great quarter and investors who bought shares when the sector came under pressure in 2022, will be reaping the rewards.
Why the good quarter?
Investors and analysts have read into the latest Fed commentary, expecting rates to either stay at current levels or drop slightly towards the end of the year. Technology stocks are one of the hardest hit sectors when it comes to interest rate increases, and potential rate hike halts and even possible cuts, is creating positive investor sentiment within the sector. Large technology companies like Apple and Microsoft, are also sitting on large cash piles, allowing them to steer through the choppy waters and find opportunities in an otherwise challenging environment. Finally, the large technology companies have been taking a serious look at their costs - with many announcing job-cuts in an effort to improve profitability in a high inflation environment.
The numbers
The S&P 500 was up 7.03% while the Nasdaq was up 16.77% for the quarter. Meta Platforms previously known as Facebook was the star performer, returning 76.12% for the quarter. Elon Musk's Tesla also had fantastic quarter up 68.42%. Apple gained 26.91% while Microsoft was up 20.22% for the first quarter of the year.
Gaining exposure to the US tech market?
As an investor there are different options to consider when looking to gain exposure to the US tech space:
1) Buy shares directly through a global stockbroking account: Access to the US technology market can be obtained through the opening of a global or international stock broking account. SARS offshore allowances will have to be complied with as detailed below.
2) Unit Trusts: US technology unit trusts will give you access to the US technology sector through a professionally managed fund tracking the Nasdaq 100 technology sector index, or a fund with direct technology company investments. Unit trusts pool investors' money together and US technology assets are then acquired and managed by a professional fund manager with a specific mandate.
3) ETFs: A pooling of funds vehicle but differs to a unit trust as an ETF can be bought and sold directly on stock exchanges. US technology ETF's can either be acquired internationally and include the Vanguard international technology ETF, or locally via the Stanlib S&P 500 Info Tech ETF which tracks the S&P 500 technology index.
4) ETNs: An ETN allows investors to gain exposure to international shares without physically owning them. ETNs can be purchased locally and allow investors to choose exposure with or without currency risk. FNB offers locally listed ETNs that allow investors to gain exposure to individual US tech companies like Microsoft, Apple and Meta. As the instruments are local, there will be no impact on your foreign investment allowance.
Foreign investment allowances
From a regulatory perspective, South Africans have broad access to the international markets but there are certain limits thereto. South African resident individuals, 18 years and older, looking to invest offshore may use all or part of the following annual allowances:
Foreign investment allowances
Closing remarks
While the quarter was extremely positive for the tech sector, investors must keep in mind factors that could hinder share performance near term and continue to diversify their investments. Inflation and interest rates continue to be one of the bigger risks to growth in 2023. Investors need to stick to finding quality companies that can withstand tougher conditions and withstand a rate hiking cycle and potentially thrive when interest rate increases come to an end.
