(Bloomberg) — In this year’s technology stock slump, fund managers have cut their ownership of marquee names such as Apple Inc. and Amazon.com Inc. to below their weight in benchmark indexes. Bulls couldn’t be happier.
The data is a reason to be slightly more bullish on big tech, according to Morgan Stanley, as stocks with relatively low institutional ownership tend to gain over the next quarter. The thinking is that bearishness is a contrarian buy signal: Investors will come rushing back in at the first sign of a stabilization or recovery in share prices, out of fear of underperforming the market.
“Investors have both the means and the opportunity to buy tech today,” said Ben Laidler, global market strategist at brokerage eToro. The strongest tech names are now cheaper and offer stronger than expected profit growth, he said.
In the top 100 actively managed institutional portfolios, five bellwether companies — Apple, Amazon.com, Microsoft Corp. Alphabet Inc. and Meta Platforms Inc. — are all under-owned relative to their weight in the S&P 500, Morgan Stanley analysts including Katy Huberty found in a review of regulatory filings. Funds on average hold 0.8 percentage point less of the stocks than their weighting in the benchmark, the firm said.
Morgan Stanley’s findings add to the evidence that investors are sitting on plenty of fuel to drive a rebound in big tech. A Bank of America Corp. survey of fund managers this month found that their allocation to the sector has dropped to its lowest since August 2006.
The sector has been pressured by rising interest rates as investors priced in tighter monetary policy from the Federal Reserve, with the tech-heavy Nasdaq 100 Index down 14% this year. While Facebook parent Meta is by far the worst performer among the big names, crashing in the wake of a disappointing earnings report, the weakness has been widespread. Microsoft is down 14% this year, while Alphabet is down nearly 10%.
The group rose on Wednesday, with Apple up 0.4%, Microsoft gaining 0.6%, Amazon up 0.2%, and Alphabet up 0.9%. Meta gained 1.2%.
“Sentiment is clearly negative, but following this across-the-board selloff, we are significantly more upbeat about the opportunities in the group,” said David Katz, chief investment officer at Matrix Asset Advisors. He named Apple, Microsoft, Alphabet, and Meta as names with strong prospects that look oversold.
Plenty of investors will look at the data and decide it’s still not worth the risk to invest in some of these companies, such as Meta, given the challenges they’re facing. And Morgan Stanley points out that it’s only megacap tech that’s underowned; funds are overweight the rest of big-cap tech by 0.3 percentage points on average.
Getting the timing right might be tricky too. Savita Subramanian, head of U.S. equity and quantitative strategy at BofA Securities, said this week she’s hesitant about the sector, writing that it was in “growth purgatory,” as opposed to a “dirt cheap, buy everything” environment.
In a report Tuesday, she posed the question of when investors should buy all of tech, and answered by saying they should wait until “everyone stops asking” when to buy.
“Before that it might be a falling knife or dead money,” she wrote.
Tech Chart of the Day
The NYSE Fang+ Index, home to the likes of Apple, Amazon and Alibaba Group Holding Ltd., is nearing a 10% drop for the month. If losses hold, it will be the biggest monthly decline since March 2020, when Covid-19 wreaked havoc in financial markets.
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(Updates prices to reflect market open.)
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