‘Gentle bubble’ forming in US tech stocks

The rejigging underscores how investors are increasingly questioning whether the cohort can repeat last year’s performance, when an index of the seven stocks more than doubled versus the S&P 500’s 24% gain. — Reuters

SINGAPORE: Capital Group Cos is shuffling stakes in US technology names amid the blowout rally in the Magnificent Seven megacaps.

The US$2.5 trillion manager trimmed holdings in stocks whose outperformance had markings of a “gentle bubble”, and raised stakes in some large semiconductor companies beyond the chip-making darling Nvidia Corp, Andy Budden, investment director for equities said at a briefing in Singapore.

The rejigging underscores how investors are increasingly questioning whether the cohort, comprised of Apple Inc, Microsoft Corp, Nvidia, Alphabet Inc, Amazon.com Inc, Meta Platforms Inc and Tesla Inc, can repeat last year’s performance, when an index of the seven stocks more than doubled versus the S&P 500’s 24% gain.

“When you look at all these other exciting industries where really important things are happening, both in the United States and especially outside the United States, you can say that for an active investor valuations are actually quite attractive in other parts of the market,” Budden said.

Bedden’s view echoes some of his peers’. Some hedge funds have cut exposure to the Magnificent Seven group in the fourth quarter citing signs of extremes.

Cathie Wood’s exchange-traded funds have been paring exposure to Nvidia over many quarters.

Bank of America Corp strategists, including Michael Hartnett, argued in the middle of February that a number of similarities between tech stocks now and previous bubbles suggest that the Magnificent Seven is approaching, although but not yet at, levels that could yet lead it to pop.

Capital Group has been selling its stake in Tesla for five straight quarters.

And with that, it has been raising holdings in Microsoft, Meta and Taiwan Semiconductor Manufacturing Co, which has a listing in the United States, over two quarters through December. — Bloomberg