Sectors: Technology
If we agree that AI is a fundamental change in the world and we’re only in the initial stages of its evolution, then we must think about GOOGL as a play on this theme.
Once or twice a year, MM usually tweaks our portfolios in a meaningful fashion, and one such occasion looks to be looming on the horizon. As subscribers know, we have a penchant for the resources space over the remainder of 2024, but this morning we have looked at four more traditional defensive plays we are considering when we migrate our portfolios down the risk curve.
When high-performing funds make major sector switches within their portfolio, we always believe it makes sense to evaluate the move. GQG has basically halved its tech exposure in their global equity fund to just 21% in April from 43% a month earlier having now moved “underweight” the sector compared to its benchmark. After exiting its position in Google’s parent Alphabet this year, GQG has also sold shares in Meta, Microsoft and Amazon. Although the firm has cut its stake in Nvidia, the AI chipmaker and market darling is still the largest position in the global fund.
We recently described MSFT as a “must-own stock,” but with our 5% position now up over +170%, there is reason to consider trimming our position slightly when we decide the markets are primed for a pullback in the high-valuation names. However, with interest rates on track to be cut by the Fed, we will adopt an if-in-doubt, stay long approach.
In April, META was hammered after forecasting higher expenses and lighter-than-expected revenue in its quarterly result. Still, the stock has regained its mojo since bouncing back within striking distance of its all-time high. While META is an impressive business, it is one we feel is maturing. Many younger people no longer use its traditional platform, and we can see growth becoming harder and more expensive; hence, it’s not our favourite amongst the US “Super Six.”
It’s been a volatile journey post-COVID for XRO as high-value stocks go in and out of favour, although the cloud-based accounting firm continues to deliver operationally. MM has held XRO for around four years, making us especially aware of how the stock can move on sector sentiment, often more than underlying company performance.
NXT has boomed over the last 18 months in line with the increasing demand for data centres as AI dominates the market. However, having witnessed Nvidia’s recent sharp 16% pullback, it’s becoming increasingly apparent that a huge amount of good news is already built into the space. While we wouldn’t be abandoning stocks like NXT, we do like GQG’s decision to trim its AI exposure. We are considering whether our Goodman Group (GMG) holding has become too large after its charge higher in FY24.
REA slipped -2.8% on Monday, its largest decline in 3 months, as high-value tech stocks struggled at the start of July. Following REA’s strong result in May, we are optimistic about their ability to drive annual price rises over the next three years given their market position, and when combined with more bells and whistles for advertisers to utilise, some of which are driven by the AI
SEK has been under pressure all year as job ads continue to weaken and their Sth American growth strategy is wound back, something we had flagged several times previously as returns were mediocre. With the possibility of the RBA hiking rates again in 2024, we believe it’s too early to catch this particular falling knife—SEK is down 22% year to date in a market where technology has flourished.
CAR fell 1.7% on Monday, continuing to rotate in the $35 area. We are fans of CAR, they’ve done a better growing overseas than SEK, and we added it to portfolio into weakness in April; if we see a period of weakness across growth stocks, we will consider adding to this holding back around $32, or ~8% lower.
