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How the tech sector led the recovery

December 14, 2020


Investors have been consumed with technology companies – particularly the oft-mentioned FAANG group of Facebook, Apple, Amazon, Netflix and Google – for years now. But the events of 2020 put those names were in the spotlight like never before. Investors began the year wary of the high valuations for companies like Apple, Microsoft and Amazon, but once the pandemic hit, their foundations and innovation proved to be the focal point of the work-from-home lifestyle and economic recovery.  

“For a number of years, some of the most dominant companies in the world have been technology companies,” says Grant White, a portfolio manager with Endeavour Wealth Management at IA Securities. “I think the pandemic has done nothing but accelerate some of the things that are becoming important. It has been interesting because of things like videoconferencing – I think that became the poster child of the pandemic through businesses like Zoom and Teams from Microsoft. That is only the beginning of the story – there is so much more coming, and these companies are well positioned for it.”

White says one of those areas is cloud computing, something the major tech players have already been building and that could allow them to continue the momentum they generated in 2020.

“These companies were ahead of the game, and now they are well positioned to take advantage,” he says. “I think we will see other aspects that become important, too, with the work-from-home culture being adopted. Cybersecurity becomes important as companies that previously centered their people in an office, where security was easier, now must pivot. That will be a big investment for many companies. Valuations are high right now in the tech world, but there is a long runway ahead.”

One of the main drivers behind the surge of technology companies has been the change in consumer trends, something White has also noticed in the wealth management industry.

“People who would normally meet face-to-face are seeing the upward trend in virtual meetings,” he says. “People are becoming more comfortable and demanding that, and it becomes a better service offering.”

Along those same lines, marketing is another area of interest for White. “Traditional methods have changed, and highly adaptable companies are taking advantage, but less adaptable companies are turtling to protect their market share,” he says. “For our industry, I feel it is getting into a time where technology is functional, but we have to convert it to a better experience for clients. There are other industries out there in the same boat.”

That notion falls in line with consumer digital spending habits, which have given rise to companies like Amazon while impacting traditional outlets like malls. Yet even White has been a bit surprised at how these companies were able to extend their momentum.

“Some were so well positioned for a stay-at-home event,” he says. “What is becoming interesting with companies like Amazon and Apple is how much further they and their valuations have gone. It shows the dominance they have, the ecosystem they have created for their customers and how important that is. They are highly adaptable.”

That adaptability is something White points to as justification for how expensive it is to own stock in these companies. Unlike with the tech bubble in the late ’90s and early 2000s, he says, these companies have built a much more solid foundation and are more durable. However, he notes that the pandemic did create an opportunity – albeit a brief one – for advisors to get in at a discount.

“I think there were companies we really liked but weren’t comfortable with what we needed to pay to own them,” he says. “Microsoft was a good example – some of the valuations were getting pretty frothy, but we were able to buy in during the drop. Microsoft and Apple – these are really good companies, and it speaks to the difference between now and the tech bubble. Where we made a lot of hay was overseas in Alibaba and Tencent. We pumped a lot of money into those companies – we felt it was like buying into Amazon, but at a better valuation.”

While technology will be remembered as the hot sector for 2020, White says its popularity isn’t likely to fade.

“There are still opportunities – you just need to be choosy in valuations,” he says. “Investors need to look outside of North American companies. Alibaba isn’t a small company, but because it is in China, some people are nervous about it. If you want good opportunities and good valuations, you need to go outside of North America.

“I think what will happen is people will start using technology to benefit more customer and client experiences,” he adds. “Companies that can bring that service to other businesses will be great companies – that is the next wave of opportunity.”

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