Good luck sugarcoating the performance of tech shares over the last six months.
The tech-heavy Nasdaq composite index in the United States is officially in a bear market, down 23%. Meanwhile, the picture isn't any prettier in Australia, with the S&P/ASX All Technology Index (ASX: XTX) down 32.8%.
Put simply, it has been complete pandemonium in the tech sector. The onset of rising interest rates has been a figurative vampire to the lofty valuations once witnessed among the high-flying sector — slowly sucking the enthusiasm from shareholders.
However, one expert portfolio manager, Bradley Amoils of Axiom Investors, believes the sun will shine on tech shares once again. If that is the case, perhaps exuberance will also return to ASX 200 tech shares.
Let's take a look at the four reasons behind this expert's tech confidence.
Why this isn't the end for tech shares
It is hard to argue that many tech companies were experiencing a state of euphoria prior to the recent pullback. However, the manager of around $22 billion worth of funds is not buying into the demise of tech.
In an interview with the AFR, Amoils addressed the real impact of higher interest rates, stating:
…it's really important that if the consumer is spending twice as much on gasoline and 50 per cent more on food, clearly they have less money to spend on other things.
This means products sold by some of Amoils core holdings such as Alphabet Inc (NASDAQ: GOOG), Microsoft Corporation (NASDAQ: MSFT), and Tesla Inc (NASDAQ: TSLA), will be competing for a share in less spare dollars.
Despite this headwind, the seasoned money manager believes four positive long-term factors still ring true for tech shares. These are debt, demographics, deglobalisation, and disruption.
The first two factors are what could be setting up the tech shares for outperformance. Essentially, enlargening debt and an aging population are indicating a continued slowing in global economic growth. This sets the scene for potential outperformance by the companies that can disrupt and deliver sustainable double-digit growth into the future.
Finally, supply chain woes and political incompatibilities are accelerating a trend towards deglobalisation. Amoils believes this will catapult domestic spending on technological developments in individual regions.
Landscape for those inside the ASX 200
Many ASX investors will be hoping Bradley Amoils' four factors prevail. After all, only one of the top 10 ASX All Tech index constituents is in the green so far this year.
The three worst impacted ASX 200 tech shares have been Xero Limited (ASX: XRO), REA Group Limited (ASX: REA), and Altium Limited (ASX: ALU). These once-lauded investments are now on their knees after cratering 45%, 38%, and 38% respectively.
