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Capitalising on technology stocks for higher growth and return potential

In the final episode of the Thematic Investing video series from the Portfolio Construction and Strategy Team (PCS Team), Matt Bullock, Head of EMEA PCS explains the impact of an allocation to technology stocks on a portfolio.

Matthew Bullock

Matthew Bullock

EMEA Head of Portfolio Construction and Strategy


Mario Aguilar De Irmay, CFA

Mario Aguilar De Irmay, CFA

Senior Portfolio Strategist


Sabrina Denis

Sabrina Denis

Senior Portfolio Strategist


26 Mar 2024
3 minute watch

Key takeaways:

  • Janus Henderson Edge technology demonstrates that adding a 20% technology allocation to a global equity portfolio shifts it towards more growth-oriented assets.
  • Increasing exposure to the tech sector can increase the upside potential of a portfolio as these stocks may have a higher propensity to outperform in the long term because of their stronger growth prospects.
  • However, investors should be cognisant that these higher returns tend to go hand in hand with higher cyclicality that is inherent within tech stocks.

A decade of faster change is upon us with technology at the heart of many themes effecting society today and in the decades to come. For example, the provision of healthcare services, the way we work, the way we travel, the rise of artificial intelligence, and the list goes on.

There is of course strong return potential that comes from exposure to the technology participating in many of societies’ themes, but in this video we want to look at what impact adding technology has to your portfolio – in particular how does that change the way your portfolio will behave?

Let’s take a look. Using our Janus Henderson Edge technology, we compared two portfolios. The first one holds 100% of assets in a Global Equity Index, and the second one adds a 20% exposure to technology. Of course, a suitable allocation to technology will depend upon your individual circumstances.

Now, we want to see what impact the allocation to technology has on the portfolio’s features.

So straight away, we can see that this addition of technology has increased the cyclicality of the portfolio meaning that the portfolio is more sensitive to the market cycle. And coinciding with that, is how the split between value and growth assets have changed. Again using the Janus Henderson Edge technology, we analyse how the two portfolios compared.

Here we can see that the Global Equity Index sits right in the middle between growth and value stocks with a large cap bias. That’s represented by the large orange dot with the smaller dots representing where the index has been over the past five years.

Now with the addition of a 20% technology allocation we can see that the orange dots have moved to the right suggesting that we have added more growth assets into the portfolio.

This means that the portfolio now has more exposure to those companies that could outperform over the longer term because of their future potential.

When considering the trajectory of technology and the importance on multiple themes in society, the investment case is compelling, and we saw from the charts before that an allocation to technology has the potential to increase the upside potential of a portfolio. However it’s equally important to accept that technology increases the sensitivity to markets and the market cycle, and we know that markets go down as well as up.

To understand what an addition of technology can do to your portfolio, feel free to reach out to your client relationship manager to arrange a custom consultation with the Janus Henderson Portfolio Construction & Strategy Team.

Source: Janus Henderson EDGE report, at December 2023. 

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These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

There is no guarantee that past trends will continue, or forecasts will be realised.

 

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Matthew Bullock

Matthew Bullock

EMEA Head of Portfolio Construction and Strategy


Mario Aguilar De Irmay, CFA

Mario Aguilar De Irmay, CFA

Senior Portfolio Strategist


Sabrina Denis

Sabrina Denis

Senior Portfolio Strategist


26 Mar 2024
3 minute watch

Key takeaways:

  • Janus Henderson Edge technology demonstrates that adding a 20% technology allocation to a global equity portfolio shifts it towards more growth-oriented assets.
  • Increasing exposure to the tech sector can increase the upside potential of a portfolio as these stocks may have a higher propensity to outperform in the long term because of their stronger growth prospects.
  • However, investors should be cognisant that these higher returns tend to go hand in hand with higher cyclicality that is inherent within tech stocks.