Speaking to InvestorDaily, Lonsec Investment Solutions chief investment officer Lukasz de Pourbaix acknowledged concerns about the overvaluation of the technology sector.
But while it was important to consider valuations, he pointed out that it was equally important to understand whether the valuations were backed up by earnings.
“A lot of these companies, from an earnings perspective, are generating very strong earnings, which – unlike the tech bubble which we saw in the late 90s, early 2000s – there's certainly a big difference there,” Mr de Pourbaix told InvestorDaily.
“If you roll back to some of the stocks in the tech bubble, some of those stocks have no earnings.”
“Do we have another tech bubble? From our perspective, that’s not our base case.”
He cautioned against painting the entire technology sector with a broad brush, recommending the need for a more “balanced approach”.
“It is a stock by stock exercise rather than a whole of sector exercise. Because within that broad sector, there's [sic] absolutely strong companies supported by strong earnings,” he said, pointing out that Facebook was among the top-ten highly weighted companies in the S&P 500 index.
“Any of those stocks in the top 10, if they are experiencing volatility, then obviously that's going to impact the broader market, the index.
“And because those stocks have done well over the recent years, they do make up a larger part of the index.
“So if they are experiencing volatility, that will show through in the stock market as well.”
This recent volatility would present fund managers with “more opportunity on a stock by stock level”, Mr de Pourbaix added.
“If we are entering a period of more volatility, then really that individual stock-picking ability is going to become increasingly important.”
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