Participating in global technology growth

November 14, 2017 Categories: Portfolio Corner
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Considering that Facebook, Amazon, Netflix, and Google—the companies behind the famed “FANG stocks”—didn’t exist prior to 1994, it’s impressive that they have become such household names in less than 25 years.1

Of course, the fact that their technologies have become integrated into many consumers’ everyday lives has helped them reach that vaunted status.

The FANG stocks have also come into the public eye because of their tremendous growth and rising valuations recently. Facebook and Netflix both returned more than 55% year to date as of October 31, 2017—handily beating the 29% average return of U.S. Technology stocks over the same period and the 16% return of U.S. stocks broadly.2

But, the FANG stocks aren’t the only fast-growing technology companies globally. Have you heard of the BATTS? If not, read on because many globally diversified portfolios include them today.

Introducing the BATTS

The BATTS are the five technology companies leading the growth of the technology sector in emerging markets—which was up 60% year to date as of October 31, 2017.3

  • Baidu Inc., a Chinese web services company that is the second-largest search engine in the world
  • Alibaba Group Holding Limited, a Chinese e-commerce company that provides all sorts of digital media and computing
  • Tencent Holdings Limited, a Chinese holding company that provides media, payment systems, and smartphones
  • Taiwan Semiconductor Manufacturing Company Limited, based in Taiwan, is the world’s largest dedicated independent semiconductor plant. They are also venturing into lighting and solar.
  • Samsung Electronics Co., Ltd., based in South Korea, is a multinational electronics company

As the table below shows, the BATTS have delivered impressive returns year to date as of October 31: Four of the five stocks are up over 50%; Alibaba is up 111%—compared to broad emerging markets stocks up 32%.4 Additionally, the BATTS are looking better than the FANGs from a valuation standpoint: The average price to earnings (P/E) of the FANGs is 138 while the average P/E for the BATTS is only 35 as of October 31, 2017.

Source: Morningstar Direct, as of 10/31/2017

Outlook for emerging markets technology

With more than half of today’s internet users living in Asia—and that number is expected to grow rapidly—technology companies, like the BATTS, based in emerging markets, may offer growth potential at a lower price.

The Bottom Line
Overall, the emerging markets technology sector is providing stunning returns and continued momentum at a lower cost than its U.S. counterpart. By keeping an eye on the BATTS and diversifying across various regions and asset classes, EM tech may be a less expensive way for some investors to participate in the continuing global tech rally.
Disclosures:
1Facebook founded: Feb 4, 2004; Amazon founded: July 5, 1994; Netflix founded: August 29, 1997; Google founded: September 4, 1998
2U.S. Technology stocks represented by Nasdaq 100 Index; broad U.S. equity market represented by Russell 3000® Index
3MSCI EM/Information Technology Index
4Emerging markets stocks represented by MSCI Emerging Markets Index
These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.This material is not an offer, solicitation or recommendation to purchase any security.Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments’ management.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.

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RIFIS: 19470

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