Capitalising on technology stocks for higher growth and return potential

A decade of faster change is upon us with technology at the heart of many themes effecting society today and in the decades to come. For example, the provision of healthcare services, the way we work, the way we travel, the rise of artificial intelligence, and the list goes on.

There is of course strong return potential that comes from exposure to the technology participating in many of societies’ themes, but in this video we want to look at what impact adding technology has to your portfolio – in particular how does that change the way your portfolio will behave?

Let’s take a look. Using our Janus Henderson Edge technology, we compared two portfolios. The first one holds 100% of assets in a Global Equity Index, and the second one adds a 20% exposure to technology. Of course, a suitable allocation to technology will depend upon your individual circumstances.

Now, we want to see what impact the allocation to technology has on the portfolio’s features.

So straight away, we can see that this addition of technology has increased the cyclicality of the portfolio meaning that the portfolio is more sensitive to the market cycle. And coinciding with that, is how the split between value and growth assets have changed. Again using the Janus Henderson Edge technology, we analyse how the two portfolios compared.

Here we can see that the Global Equity Index sits right in the middle between growth and value stocks with a large cap bias. That’s represented by the large orange dot with the smaller dots representing where the index has been over the past five years.

Now with the addition of a 20% technology allocation we can see that the orange dots have moved to the right suggesting that we have added more growth assets into the portfolio.

This means that the portfolio now has more exposure to those companies that could outperform over the longer term because of their future potential.

When considering the trajectory of technology and the importance on multiple themes in society, the investment case is compelling, and we saw from the charts before that an allocation to technology has the potential to increase the upside potential of a portfolio. However it’s equally important to accept that technology increases the sensitivity to markets and the market cycle, and we know that markets go down as well as up.

To understand what an addition of technology can do to your portfolio, feel free to reach out to your client relationship manager to arrange a custom consultation with the Janus Henderson Portfolio Construction & Strategy Team.