Technology did well coming out the other side of Great Financial Crisis 2008/9, so there is a precedent to hold tech coming out of a recession as we have recently. But, US tech is starting to look like a real bubble. It is overheated, but still wants to move higher in the short term. (The Nasdaq 100 P/E has gone up 40% over the past year.)

Take Tesla for example. This is bubble behavioural economics in action. It is remarkable how, recently, TSLA rose by 80% over a two week period, and then closed down on the day with an 18% fall. A cool $40 billion lost on a wild day.

It may well have further to go but Tech has become a somewhat dangerous place to be invested. Technology stocks risk being beaten with a regulatory stick, and some may even face a breakup. The rate-sensitive stocks will be derated, not just because of higher bond yields, but higher taxes too. These stocks have become so popular in recent years that the selling pressure could last for years.

Tech stocks face three big problems

1. First, they are overvalued. After a long period of excitement, companies like Tesla and many leading players in green energy are highly valued by stock markets even though they are not going to be profitable for some time to come. The last occasion that I can recall when something like this happened was about 20 years ago, in the great technology, media and telecoms (TMT) boom.

2. The second problem is the general economic environment. Various signs – such as rising energy and commodity prices – point to higher inflation at a time that global economic activity is recovering from the Covid-related downturn. History shows that undervalued stocks in traditional areas outperform. Overvalued stocks in previously favoured areas – like tech – often fall.

3. Rising inflation gives rise to the third problem, which is rising bond yields. Rising bond yields increase the cost of money. Tech stocks have benefited from an era of very cheap money, and that era is coming to an end.

IT’S NOT ALL BAD FOR TECH!

Existing as a bubble, though it may be, the solutions to the problems currently assailing us will be found in the technology sector.

Internet-based companies are aligned with the secular changes that were happening without the Covid global pandemic. The pandemic has accelerated the changing ways of working that were already in flight:-

• 2008 Great Financial Crisis… 20 % people online

• 2020 Coronavirus Pandemic… 60% people online… Netflix and other streaming companies outperform… social media booming. Big Tech Companies have all become essentials. Microsoft, Amazon, Google have all become like ‘utilities’.

Longer term, the tech sector will be in the ‘Inflation’ section, but the bubble mania has relegated it in the short term. I still view technology (tech) stocks as dangerous, and investors in them are currently at risk of loss of capital.

Best Performing Tech Funds

Below we cover some of the best performing tech funds covering the US tech market along with some more diversified global tech funds (which will also own US tech)

The table below shows the returns from some well known. high performing, popular tech ETFs and Investment Trusts along with a NASDAQ 100 tracker (QQQ) and an iShares US tech ETF.

The tech sector of the big US SP500 Index is 'XLK' (Ishares) tech ETF. VGT from Vanguard above does the same same job.
For a Global Tech Index tracker, 'IXN' (shares) Global Tech ETF does that job.

Let’s take a look at some of these in a bit more detail…

Option 1: Scottish Mortgage Investment Trust

Scottish Mortgage Investment Trust (LSE: SMT) is a global equity product managed by a team of top stock pickers at investment management firm Baillie Gifford. SMT has a strong focus on technology with a focus on innovative tech companies that are disrupting established business services. SMT is in the Moneyweek Investment Trust we reviewed HERE (new tab)

Morningstar gives this fund a GOLD rating and Five stars! A full house… CLICK HERE for the Morningstar fund page.

The UK FTSE 100 barely has any technology so this trust provides investors with exposure to this crucial growth sector. Top holdings include Tesla, Amazon, Alibaba, Tencent, and Illumina.

SMT Performance in recent years has been outstanding and this all comes at a very low cost. Just look at 2020, over 100% gains have been made.

There is also the top 100 Nasdaq stocks which in theory should be a bit safer that investing in the whole NASDAQ index. An ETF tracking the NASDAQ100 Index is 'QTEC' NASDAQ 100 tech sector ETF