- Technology stocks have led the broader market rally this year, but a team of analysts led by UBS Global Wealth Management Chief Investment Officer Mark Haefele see stocks representing a return to normalcy on the rise.
- “We think global equity gains from here may lean more heavily on ‘more normal’ themes rather than the ‘stay at home’ dynamics that have favored mega-cap tech,” UBS said in a Wednesday note.
- To play this trade, UBS recommends investors remain in tech but diversify within the sector, while adding stocks that represent the “more normal” theme.
Technology stocks led the broader market rally this year, but a team of analysts led by UBS Global Wealth Management Chief Investment Officer Mark Haefele are now predicting that stocks representing the “more normal” theme will start to gain over mega-cap tech names.
In a Wednesday note, UBS said that recent price volatility in the technology sector has “flagged concentration risks.” It also forecast that uncertainty surrounding technology antitrust will linger until the election.
“We think global equity gains from here may lean more heavily on ‘more normal’ themes rather than the ‘stay at home’ dynamics that have favored mega-cap tech,” UBS said.
Here’s how UBS is advising investors to prepare for this shift:
1. Diversify within tech
“Tech stocks are not in a bubble, in our view, and are fairly valued given their earnings growth outlook,” UBS said. The firm still likes “many of the largest names” but also said now is a good time to rebalance mega-cap tech exposure with newer themes. “We like 5G enablers and platform beneficiaries, which include leaders in smart mobility, cloud, and gaming, as well as China’s digital economy stocks, including ecommerce, food delivery, travel, search and fintech services,” UBS said.
Diversify beyond tech
“We think the next leg of the rally will likely rely on incremental mobility gains, positive vaccine developments and improvements in US political dynamics.” UK stocks, US mid-cap stocks, emerging market value stocks, and global industrial stocks are all poised to gain from this trend, according to UBS.
3. Stay invested
“Rebalancing mega-cap tech exposure does not mean selling it all off,” UBS added. The wealth manager said that typically a rebound of at least 20% occurs in global tech stocks after a correction. So, investors shouldn’t look at near-term volatility as a major threat. Instead, UBS said to use this volatility to “build up positions using options, structured investments, or a disciplined phasing-in strategy where appropriate.”