Despite Netflix Rally Tech Investors Still Nervous

  • Oct 18, 2018 AEDT
  • Team Kalkine
Despite Netflix Rally Tech Investors Still Nervous

Netflix does not pay dividends and has never paid a dividend as a public company, which does not necessarily mean that it is a bad investment. On the contrary Netflix has, since at the price of $40 in October 13, nine-fold in five years and shown a tremendous rally.

For the FAANG (Facebook, Amazon, Apple, Netflix and Google- parent Alphabet) stocks Netflix has set a bullish trend, but as a crucial earnings season for US technology companies comes into play, investors who have stacked up into the tech trade remain cautious. On October 17, 2018 shares in the company rallied by 4 percent, because in its latest financial quarter it was backed by better than expected subscriber data. Since the beginning of 2018, the stock has lifted itself by more than 90 per cent. 

The NYSE Fang+ Index despite the rise in Netflix shares, remained in negative territory on October 17, 2018 down 0.31 percent from Tuesday’s close. The benchmark from its all-time high struck in June, is down almost 15 percent. For the year to date Fang index is still higher 17.8 percent. For much of the wider 2018 rally in US stock markets, the trade has been responsible.

Chief investment officer at Capital Innovations, Michael Underhill said that over the last three years the concentration in performance has been a concern for investors. To instill more confidence there has to be more breadth and depth of performance to the market. Should the turbulence remain there is awareness that a concentration of capital in few companies that raises the risk of a fall in their prices could magnify losses in the overall market, as investors are increasing their exposure to the stocks.

Combined with a long position in the Chinese equivalent BAT trade, Fund managers surveyed by Bank of America Merrill Lynch ranked the long-Fang position, which includes Baidu, Tencent and Alibaba, as the most packed for the ninth consecutive month.

Believing the global economy is in the late stage of the economic cycle, combined with a record proportion of investors, increasing the probability that any dip will become an intensive downturn. Should investors rush to sell, the exposure to tech stocks threatens to ripple.

For other big tech names and for Wall Street, the upcoming earnings season is seen as a significant test more broadly. CIBC Private Wealth Management, Chief investment officer, David Donabedian, said, as soon as the next tech company reports, Netflix will be forgotten, but it is important today and in short term.

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