Investors sought US technology shares this week, underlining the degree to which money managers are broadening their search for sectors that should benefit from a pick-up in spending by corporate America.
There were inflows of almost $900m in the week to January 25 into funds invested in technology stocks, according to flows tracked by EPFR.
“We think that there is going to be a more meaningful capital expenditure cycle as the economy accelerates and we think that goes into technology infrastructure,” said Tony Roth, chief investment officer at Wilmington Trust. “We think that is a big opportunity still.”
Technology shares, which have lagged behind only the materials industry this year, have been boosted by expectations that higher capital expenditures will filter through to increased spending on computers, robotics and software.
Mr Trump’s “energetic start to his term in office also encouraged investors to pencil in repatriated earnings to their outlook for US technology plays,” said Cameron Brandt, the director of research for EPFR.
The move into tech shares also reflects the degree to which investors are seeking out those sectors that lagged the rally in equities between Mr Trump’s election victory and the end of 2016. Over that period the S&P 500 Info Tech index was up just over 1 per cent, compared with the 4.6 per cent rise in the S&P 500.
However, this year the S&P 500 Info Tech index is up 5.5 per cent, behind only the materials sector in terms of gains.
The wider week was marked by renewed confidence that Mr Trump will follow through on his pro-growth agenda, pushing interest rates and inflation expectations higher and buoying company stock prices, with investors putting $2.2bn back into the share market on Wednesday alone.
Beyond the technology sector, healthcare stocks, which have been outpaced by the S&P 500 this year, suffered $772m of redemptions, the largest withdrawals since March 2016, on fears over pricing pressures.
Global bond funds continued to have strong inflows, with $8.6bn of fresh capital added in the week — the largest haul since October — with “solid demand” for investment grade and leveraged loan funds, strategists with Wells Fargo said.
By contrast, additions to global stock funds slowed, with funds counting less than $100m of inflows compared to $1.7bn in the previous week.
There were also signs in EPFR’s data that the Trump trade was drawing investors into financial stocks as the wider trend continued to gather momentum. High yield and bank loan bond funds all took in more than $1bn, as did US short term blend and government bond funds.
“The latest sector allocations data suggests that managers believe Trump’s agenda will be good for financial plays, with exposure to that sector at its highest level since the third quarter of 2015,” pointed out Mr Brandt.
