The ASX All Technology Index, along with the Xero Technology Weights (XRO) and Afterpay (APT), have fallen significantly in recent months.
In this weekly video, Steve Johnson, the investment director, talks to Forager Australian Shares Fund (FOR) senior analyst Alex Shevelev about the factors that have led to the decline.
Hi and welcome, I’m Steve Johnson, investment manager here at Forager Funds and I joined today’s video by Alex Shevelev. A very friendly but concerned investor emailed us after last week’s Forager Australian Shares Fund webinar, worried about my well-being and how tired I was.
I’m fine, I promise you, I’m just getting older. But one sector of the ASX that seems tired is the technology sector. Perhaps surprisingly, the newly created technology index here in Australia has dropped 20% from its peak. Good quality tech companies have fallen with Xero a 23% discount and even the growth sector poster, Afterpay, is now down 45% from its maximum just a couple of months ago. Alex, what’s going on around here?
There are many concerns around the movement of interest rates around the world, but there is also a lot of excitement coming out of this space. And it’s not just high-growth tech names. There are many companies that were beneficiaries of COVID, such as Redbubble in half, and Kogan 60%.
Those companies really had a lot of enthusiasm in those stock prices that have now been substantially reduced.
We are seeing it in our portfolios, also in the International Fund, in this space it has been largely indiscriminate. If you report some big numbers, they will hit you and if you report disappointing numbers, they will hit you twice, and that has been the moral of the story.
But there are some interesting companies that are starting to trade at much more attractive prices. I think some of these companies have come a long way. It is really worth thinking about your need for cash, or if you are a company that consumes cash, the low price of the stock itself can be boosted. But we are looking at the area with much more interest than we had before.
It’s true and we have some technology-oriented actions and other actions that grow. We own RPM Global, which you would have read in the monthly reports. It is one of the biggest positions and it has really been reaching new highs recently.
I think the justification for this starts with a lot of investors ignored by a lot of manias that followed COVID. There are also some reasonable expectations that are now starting to show. Life360 is another stock that is not far from its highs despite being a U.S.-focused and growing business. It has the same setup, has lower expectations, and is really starting to make itself known to the investment community.
I think most of these investments are probably in the reopening trade of COVID. They suffered earlier due to COVID for the last twelve months. So people see them more as winners coming out of it. In our portfolio has been the discretionary side of the consumer the things that worked very well through COVID, which have been more affected than the technology companies we own. This space has been a violent sale and we have a good list of probably eight to ten companies that we would love to have at the right price and are now much closer. So if this continues for a few more months, you can expect to see a few more names in the Australian Fund’s portfolio.
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