Technology is entering a ‘golden age’, accelerated by the Covid-19 pandemic and a labour shortage that will force the use of robotics, says Allianz Technology (ATT ) fund manager Walter Price.
After a stellar 2020 as the pandemic shifted work, shopping, and leisure online, this year has been slightly tougher for technology funds. Fears that the US Federal Reserve will hike interest rates in the wake of rising inflation has caused sporadic sell-offs in technology stocks.
Investors enjoyed a 27.4% share price increase over the past 12 months but year-to-date the story is slightly different as the shares have fallen 9.1%. The share price woes have not, however, been reflected in the net asset value (NAV), which has jumped 42.9% over the year and edged 0.9% higher year-to-date. This has left the trust trading at a rare, wide discount of 8%.
The fortunes of share price of the £1.1bn trust may have waxed and waned with those of the Nasdaq but Price is unconcerned about the trajectory of the sector, believing it is entering a new period of growth.
‘We look forward to entering a golden age for technology, and [the sector] will be able to sustain the premium that we have seen,’ he said.
This ‘golden age’ has been accelerated by the move to cloud computing during the pandemic as ‘companies that were dragging their feet, including country and state governments, realised the cloud was more flexible and they should move there’.
A labour shortage will also have a profound effect on the technology sector, as it has done historically.
Price said within the technology sector there are ‘three open positions for every person so competition to get enough sales people, development and tech support people’ is fierce.
He said labour shortages and booms typically work on a 15-year cycle and we are entering one now, and not just in technology but for restaurant staff, factory workers, manufacturing plants, and distribution outlets.
‘In the past, during periods of labour shortage – and the last one was in the 1990s – then what we see is that is a period when technology [stocks] do really well,’ said Price.
The reason is because companies are forced to substitute workers with technology and it ‘makes sense to invest in technology and relieve the shortage’, said Price.
He said a change to the way people work will also fuel technology take-up within companies. Over the past five years the gig economy has boomed and people happy to work in it means there ‘is not only a shortage of labour but…people want a work-life balance, and not necessarily work five days a week or 40 hours a week’.
‘Companies are struggling with that and they have to change their way of operating,’ said Price.
‘I was talking to a person who runs a logistics company and it is difficult to get people to work when the weather is good and they want to go to the beach, they don’t show up. But when you are running a distribution business, if someone doesn’t show up you have a big problem, so as far as they’re concerned it’s ‘bring on the robots’.’
Price (pictured) said while robots are obviously not capable of fulfilling all human roles, companies are ‘more interested than they were in the past’ about bringing in robotics where they can.
The only hinderance for technology stocks this year could be inflation and Price said there is ‘pressure on mega-caps’ through the world.
He focuses on the medium and large-cap technology stocks that are not below $1bn that ‘have a better chance of growing more rapidly’ despite any rise in inflation.
On top of macro factors, Price said mega-caps are also dealing with increase government regulation, scrutiny of their tax positions, and their social contribution.
He said although these ‘big powerful companies’ may, like Amazon, have consumers at their heart this can often be at the expense of suppliers, who they are ‘trampling’ on.
‘Governments are thinking about how to balance the benefits to large companies and consumers with the benefits to employers. In the case of suppliers, there could be regulation or they could force Amazon to split off its own supply business and compete with other suppliers,’ he said.
When it comes to companies like Facebook and Google, governments are looking at revenue sharing with other media companies that create the news these sites are promoting to ‘keep the organisations healthy’.
‘These are big, important companies and the government is the only one able to control them and set rules for them,’ he said.
‘It will cause a constraint on growth and profitability, but they are still great companies.’
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