Investors have really soured on technology stocks. Bank of America’s (BofA) monthly fund manager survey shows allocations to technology stocks have plunged over the last month, falling to their lowest level in almost 16 years.
Current allocations are almost two standard deviations below their long-term average, prompting Bank of America's Michael Hartnett to recommend investors "go long US tech" as a contrarian trade.
It’s some turnaround in sentiment. Investors had been overweight in tech stocks every single month since December 2008. Still, the survey also shows fund managers believe that long tech stocks remains the most crowded trade in global markets.
Similarly, sceptics might argue that while valuations have fallen sharply they may fall further. Even after the recent correction Nasdaq 100 companies trade on a median price-sales ratio of 6.4, notes Compound Capital Advisors' Charlie Bilello. Ten years ago, when 10-year bond yields were at the same level as today, this multiple stood at 3.0.
Technology valuations, cautions Bilello, “can certainly go lower”.