The key reason why the FTSE Aim indices have performed so well since last year’s stock market crash is because they have a much higher weighting to fast growing sectors (technology, e-commerce, and healthcare) than the FTSE 350. These are the sectors that have proved most popular with investors. To put their outperformance into perspective, the FTSE Aim All-Share index of 728 companies has doubled in value from its March 2020 lows, and is now 21 per cent higher year-on-year. The FTSE 350 index is 11 per cent lower than its 2020 high-water mark.
The outperformance is hardly surprising given the global pandemic is accelerating the adoption of technology in our everyday levels, and brought into sharp focus the sectors and industries that are likely to enjoy the highest growth prospects in the future. The flood of liquidity into markets has also created a favourable back drop for the perceived more ‘risky’ end of the equity market.
I have a fair amount of exposure to stocks that are doing well in the new ‘normal’, although valuation metrics vary widely across sectors and in depth analysis is required to establish the quantum of the future growth embedded in current valuations especially as analysts’ research is thin on the ground. It’s a task well worth doing as the trio of technology stocks this week highlight.