Rob Arnott, the chairman and chief executive officer of Pimco subadviser Research Affiliates LLC, is one of the most influential minds in investing, having pioneered a new technique that’s since grown into a $730 billion industry.
Arnott issues some tough words for the biggest companies in tech, whose market-dominating valuations are viewed as invincible to many investors.
The way things stand right now, it’s nearly impossible to imagine a world where tech stocks aren’t the most dominant force.
Just take a quick glance at the eight biggest companies in the world right now, of which seven can be classified as tech. It’s a degree of dominance that exceeds even the height of the dotcom bubble, when just five firms cracked the top eight.
And while that heavy concentration might signal another bubble to some, tech bulls will be quick to point out that the industry’s market leaders are far more profitable now than they were at the turn of the millennium.
So everything is fine, right? These mega-cap tech firms will grow their valuations in perpetuity, and their perch atop the global rankings will remain unassailable?
Wrong, says Rob Arnott, the chairman and chief executive officer of Pimco subadviser Research Affiliates LLC, where he advises on more than $200 billion. Widely known as the godfather of smart beta — one of the world’s hottest investment strategies — he’s made a career out of challenging the status quo.
His quantitative innovations have not just tackled traditional notions of stock indexing head-on — they’ve also given rise to a whole new investing business, with more than $730 billion now wrapped up in smart beta products worldwide.
And now the perceived invincibility of tech has drawn his ire.
“When you get these bubbles, you find that a meme or a narrative takes shape that things are changing in a way where this sector or segment is permanently is going to be dominant,” Arnott told Business Insider during a recent meeting. “That narrative has momentum, and it captures the imagination because there are grains of truth in it. But it’s ultimately a flawed way of thinking.”
A lot can change in 10 years
At the root of Arnott’s tech argument is the manner in which competition tends to unfold. When a company is an industry-leading juggernaut, it can work against them in the longer term, because valuations get overextended and copycats spring up.
It …read more
Source:: Business Insider