The latest active managers holdings report from Bank of America Merrill Lynch revealed that mutual funds are heaping into technology stocks to the highest recorded level. The money of the millennials is going in the same direction as that of Silicon Valley.
It is 2017,
Everything around us has been revolutionized thanks to the advancements of technology. Even the stock market hasn’t been able to keep itself safe from the effects of the big tech giants which now form a large-cap as top companies in the world. Reliable investment news and information forums like Investopedia have also given their green signal in tech stock investment as the ETF is up by around 22% year-to-date.
Dividends or no dividends?
While the general investing population is inclined to invest in the dividend-yielding stocks, the young adult investors are interested in buying shares in tech companies. Steve Quirk, executive vice president of TD Ameritrade’s Trader Group says that the millennials’ favorite stock is Apple. Well, this information doesn’t come as a surprise as early in May, the company paid the world’s biggest dividend. However, the remaining favorite stocks including Amazon, Facebook, Netflix, and Tesla do not pay any dividends.
The most surprising success story has been that of Netflix which has seen the largest increase in its stick over the course of last year. On 10th July 2017, Netflix traded at $152.67 which was 61% more than its price exactly a year ago.
Millennials, nevertheless, appear to be trading based on what they know. Quirk continued, “If I trade Snap, 75% of the people who trade Snap also trade Facebook and they trade Twitter. So they all tradethe same.” Another contributing factor to millennials’ investments is that they trade with their tablets or phones. Out of 22% of total trades, the millennials make 46% through their mobile devices.
Better safe than sorry!
While industry titans like Jeff Gundlach call this progression a mere bubble, there is no denying that there is a lot more to tech industries and their role in the stock market than we have witnessed yet. However, the trailing of 12-month price-to-earnings (which is a whopping 24 times) of this sector definitely requires a bit of caution for any unfavorable circumstances.
There is overcrowding of investors in the tech sector but the performance data shows that the recent trends are also towards a promising future returns.Savita Subramanian wrote, “Over the last several years, buying the most underweight stocks and selling the most overweight stocks has consistently generated alpha.”Alpha is referred to as the excessive return of portfolio in relation to the benchmark performance shown by the market.
She further explains that it is not possible for the crowded stocks to go higher as everyone is already in the trade. The biggest risk involved here is the sentiment because millennials might make an emotional decision at any time and this will cause the favorite to come soaring down without any rational explanation.
The past 20 years of quarterly observations show that there has been a 4% increase in the tech stock values so historically speaking, this is the best time to own tech shares. Yet, there is no guarantee in the stock world so better not be oblivious or careless. To read more about tech and other stocks, capital.com is the best resource.