The recent sharp falls in the tech sector and regulation threats hitting the headlines highlight a share price vulnerability for some of the most recognisable US tech stocks. Martin Currie Global Portfolio Trust has been differentiated by its low (or no) allocation to these companies, meanwhile generating strong returns with higher conviction in different quality growth companies.
Below is a summary of some of our long-term concerns on the FAANGs. Of course, our views are subject to change in the future as market conditions change and the companies and sectors evolve.
The regulatory threat to its platform would be a concern for us, especially as the impact of this risk is hard to quantify. The company has struggled to protect its users’ data effectively at times and has suffered some misuse for political interests. This risks undermining trust and the ability to grow its user base. The social media company’s future growth profile is also uncertain, as its ability to attract new users could be at risk of stagnating and the average revenue per user could be falling over time.
The company operates in a competitive segment of the market and risks an erosion of pricing power. There is also an increasing threat from highly innovative companies such as Samsung. We do see opportunities to be exposed to the Apple ecosystem, but in parts of the value-chain with greater pricing power and with less competition and consumer-choice risk.
We believe the e-commerce giant is at a lower risk of regulatory and competitive threat than the other FAANGs. A strong market position and a supportive returns/growth profile are all favourable in the medium term. This is a company that we look at favourably in terms of its business model and returns potential.
The streaming service faces stiff competition. Apple, Amazon and Disney are also in the same space and have sizeable financial firepower. There is an increasing requirement for stand-out programming to attract, or retain, viewers. This may lead to higher content production costs, and puts pressure on its returns potential in the mid-term, which is an area of concern.
The search engine’s monopolistic position is at threat from a regulatory risk which is hard to quantify or time. Increased scrutiny from the authorities could have a meaningful impact on the company’s earnings over the long run. This ‘unknown’ makes it less probably for us to build a positive investment case.
We believe it is important to maintain a balanced approach when it comes to investing – even when we do so with a high-conviction, concentrated approach. As such, avoiding over-reliance on one sector or industry is an important factor we take in consideration. This is why we ensure our portfolio is diversified across a range of both sectors and geographies, despite being focused on our best ideas.
Regulatory information and risk warnings
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