- While valuations in some areas look stretched, investors shouldn't abandon tech
- Investment trust discounts could be an opportunity to top up
There’s a lot of nervousness around the valuation of global technology companies. Jeremy Grantham, co-founder and chief investment strategist of Boston-based asset management group GMO, has been sounding alarm bells for months. At the start of the year, he declared the US stock market to be in a ‘fully fledged epic bubble’. The big-tech-dominated S&P 500 index has risen by 18 per cent for the year to 24 September.
It’s true that technology stocks are expensive on a historic basis. The tech-heavy Nasdaq Composite index currently has a 12-month forward price/earnings ratio of 31 times, according to FactSet. That compares with under 20 times five years ago. However, given the earnings boost many tech companies have enjoyed over the past 12 months, some analysts argue that many names deserve their high ratings.