Deja vu 2002 – 14th July 2020

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Published on
16th July 2020

Anyone remember the “dot.com” bubble bursting in 2002?  Investors, both institutional and private, had been jumping into anything tech related just because it was tech!  Resulting in massive over pricing of internet stocks, particularly those listed on NASDAQ, that ultimately resulted in market carnage!

Fast forward to 2020 and we seem to be seeing similar levels of obsession that has created a huge increase in the value of anything that looks like tech.

When it became clear that Coronavirus was going to be a global scale economic catastrophe, equity markets around the world went into freefall.  Most markets bottomed around the end of March with losses on average of around 30% compared to the highs earlier in the year.  Since that time, investors have been moving monies into businesses that they believe can adapt to the disruption or may even benefit from it.

Netflix for example, a business that’s seen a big rise in subscribers as people were locked down at home, has seen its shares almost double in value since the market low point in March.  Similar story at Amazon, where it’s share price has moved from around $1,600 a share to over $3,300 over the same period.  Great news if you had investments or pensions invested in these stocks!  But are these values sustainable?

It’s easy to see why investors have been attracted to businesses like Amazon, an already dominant global goliath, which seems to have become the default place for people to spend whilst locked down at home.  As we’ve been unable to spend money in pubs, restaurants and the high street, Amazon has undoubtedly benefited from a frenzy of home shopping.  But at some point, things will surely swing back to some form of normality.

As countries start to come out of lockdown it’s likely that our wallets will return to other demands, at least partially.  Will all those households that didn’t have a Netflix subscription prior to lockdown continue to pay for this once they are back at work and school and having to pay for petrol and train fares once again?

And let’s not forget that the world economy is severely damaged.  Tens of millions of people will lose their jobs once government schemes and subsidies fall away.  Tech companies aren’t immune to this.

Is it time to start moving back to traditional businesses?  It’s not clear.  Our view, as always, is to make sure your pensions and investments are invested in a diverse range of holdings to protect against volatility in a particular market or sector.

Here’s hoping this isn’t a bubble and is backed by a realistic expectation that earnings from these companies will follow.

One fund that has fared particularly well during this period is the Baillie Gifford American fund, a fund that has been held in our portfolios for many years.  At the time of writing this fund is up an eye catching 63.7% over the last 12 months and a staggering 93.9% since the March low point.  The fund is stuffed with tech stocks including the aforementioned; Netflix and Amazon, along with Tesla, Google (Alphabet Inc) and Shopify.  If you have beeen invested in one of our pension or investment portfolios over this time, you will have benefited from Baillie Gifford’s success.

Get in touch if you’re not sure how to invest your pensions and investments.  Getting the right financial advice, especially in these volatile times, can make a significant difference to your future planning and the achievement of your financial objectives.

Robert Simpson, Managing Director