The relentless trend upwards on the back of ETF buying of the large cap tech stocks has accelerated the rise of the market and a correction back to the 200-day MAV was (is) overdue in my view.
Snapchat has also caused some concern – not only is it overvalued (some may argue its IPO was only successful as ETFs had to buy into it) but the bigger issue is corporate governance.
Shareholders have no voting rights so can’t influence the company’s direction. Investors are therefore only buying the potential for future profits – profits that may or may not materialise. Sound uncomfortably familiar?
Despite all this, Gleeson ‘s view is that the fundamentals have not changed and are still positive.
There are no signs of overspend or overcapacity, companies have strong leverage and cash flow – i.e. healthy balance sheets with surplus cash being used for investment, acquisitions or share buybacks.
It’s also worth bearing in mind that, since 2014, large-cap tech cash has built up considerably and could, in theory, now purchase more than 130% of SMID tech market cap. 2016 was already strong for M&A and 2017 is forecast to be stronger still.
So the question is should retail investors be taking their profits too or gamble on the market heading higher? Gleeson is being cautious.
He’d already been building up his cash weighting to about 3% in the past couple of months and, following a trip to San Francisco last week, plans to use this to invest in some new ideas.
