“We’ve reached an unprecedented level of concentration in the market. It’s not really passive investing if you’re putting money into an index fund and you’re only getting a handful of stocks,” said Don Townswick, director of equity strategies and portfolio management at Conning.
So investors need to look beyond the top tech stocks — and more at smaller, rapidly growing, innovative companies that can be the sector’s next leaders, one fund manager says.
Loukas is focusing on emerging leaders in dynamic industries like virtual and augmented reality, cybersecurity and health care tech, he told CNN Business in an interview. The earnings and sales growth for these smaller companies is expected to be much higher than for the larger, more mature giants of tech.
“You want to invest in areas that had tailwinds before the lockdown that have only accelerated since then. These are not more consumer companies like Apple, Amazon and Google. These are fundamentally incorporated into the machinery of big businesses,” Loukas said.
‘You can’t just own tech through the Nasdaq-100 QQQ fund,” he added. “That’s basically FAANG.”
Cybersecurity stocks could be among the big winners
Connings’ Townswick added that there are smaller, nimbler tech stocks that are probably undervalued and could do well even if the FAANGs, Microsoft and Tesla finally cool off.
“Eventually the market will reward a broader set of companies,” Townswick said.
Big Tech under pressure
“One of the few bipartisan issues of agreement is that tech companies should be regulated more. That sets things up for a very different environment for big techs,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors.
“There are better opportunities with mid-sized tech companies. Antitrust regulation is designed to help smaller rivals,” he added, saying that smaller cloud firms that compete with the likes of Amazon, Google and Microsoft could benefit.
Gokhman also said smaller tech firms are more attractive than big techs right now because they are cheaper and more domestically focused.