The strong performance exhibited by technology stocks since 2012 makes them an attractive investment option, but Stockspot cautioned investors that chasing ‘hot sectors’ could result in poorer longer term returns.
Stockspot chief executive Chris Brycki noted that technology stocks now include the five largest companies globally, but added that “sectors inevitably return to the mean”.
“After a period of very strong returns, a sector is prone to have a period of weak performance. That period of weakness can last years or even decades, so for people who bought late in the cycle it can mean a long wait before making back the money you’ve invested,” he said.
Mr Brycki said stocks tended to reach their peak at the same time they are talked about most, and that investors should be mindful of stocks which appeared routinely in the media.
“If you’re seeing a certain sector in the news day after day, at best you’re late to the party and worst case, you’ve completely missed the boat,” he said.
Investors who are currently thinking of investing in technology should therefore consider the risk of overexposure.
“Anyone looking to start investing in this sector now should be asking themselves if it’s the right time to be focused on tech stocks," Mr Brycki said.
“History suggests that other sectors are more likely to be the big winners of the next five years."