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Buy up this sector that has tech-like growth: fundie

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A fund manager has declared the share markets to now be at a “rare turning point” and has named the next sector ready to enjoy technology-like growth.

Frazis Capital Partners portfolio manager Michael Frazis said while there’s little chance of interest rates rising anytime soon, many “red hot tech stocks” seemed to have now passed their peak.

“Longer term yields have begun to rise, tech valuations are at record highs, and we believe a period of serious multiple compression has already begun,” he said in a memo to investors.

But Frazis added a possible rationalisation in the market means it’s an opportunity to buy.

And with tech seemingly overvalued, the Sydney portfolio manager is ready to put money into another sector set to take off in the post-COVID-19 world.

“We are increasing our investments in the life sciences,” he said. 

“Decades of painstakingly difficult and pedantic work in laboratories all around the world has lifted the state of genetic technology to [what was previously] science-fiction levels.”

Life science technologies are presenting investors with “extraordinary new greenfield opportunities”, according to Frazis.

“Many companies in the life sciences are coming off epidemically depressed revenues, are cyclically defensive, and have growth rates as high as any in tech.”

Frazis said companies that are in the COVID-19 vaccine race are already doing pretty well. But other life science companies not in that game are undervalued.

“Those associated with, say, elective surgery in hospitals or non-lethal conditions – a large group indeed – have struggled. Now those trends will reverse, and this is positive for some of our holdings like Progyny Inc (NASDAQ: PGNY), which focuses on fertility.”

Selling down technology

Frazis told The Motley Fool last month that his fund was up about 60% so far this year.

That success was built largely on the backs of amazing growth from technology shares. But he’s now cycling those out.

“We are dramatically reducing what little we have left invested in 40x revenue businesses,” he said.

“These have generated spectacular returns for us, but have now graduated into ‘lower return prospects’. We are focused on the next set of opportunities in the $1 billion to $20 billion market cap range growing at more than 100% [per year].”

Best year of travel ever

Aside from life sciences, Frazis is adding another sector to his portfolio.

It’s one that will obviously benefit from a future COVID-19 vaccination or treatment.

“We believe that the best year in travel on record will shortly start, and intend to be there for it.”

Frazis told The Motley Fool last month that his fund focuses on companies that its customers support with religious fervour.

“We want true customer love. We want explosive growth. We don’t even use these traditional metrics that other people use,” he said.

“It’s been extraordinarily effective. I think we’ve got 18 things that have tripled or more from when we first bought them. Got a number of 4x or 5x opportunities.”

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Returns as of 15th February 2021

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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