sickly tech - Hermes Investment Management

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SICKLY TECH Eoin Murray Head of Investment

Hermes Investment Office July 2018

For professional investors only

www.hermes-investment.com

HERMES INVESTMENT OFFICE

Now don’t misunderstand, for technology is undoubtedly the future and has improved our lives in so many ways, but there’s something not quite right about Big Tech at the moment, despite phenomenal long-term share price performance. In fact, the original ‘Four Horsemen’ were setting the pace back in 2007:

Big tech in 2007 160

Amazon +135% Apple +134% BlackBerry +127%

140 120 100 80 60

Alphabet +50%

40 20

S&P 500: +4% Dec 07

Nov 07

Oct 07

Sep 07

Aug 07

Jul 07

Jun 07

May 07

Apr 07

Mar 07

-20

Feb 07

0 Jan 07

G. Soros – Chairman of Soros Fund Management and of the Open Society Foundations

Big Tech is having a rough time of it at the moment, besieged from all sides – governments and regulators have to show an interest, while investors have questions about economic harm and consumers question their social licence to operate.

% Return

It is only a matter of time before the global dominance of the US internet companies is broken. Regulation and taxation, spearheaded by Vestager, will be their undoing1.

Source: Bloomberg as at December 2007.

And with the exception of Blackberry, whose fortunes may represent a salient note for our comments, they have continued to deliver strong returns:

Big tech to date 1300

Amazon +135%

1100

700

Dec 17

Dec 16

Dec 15

BlackBerry +127%

Dec 14

-100

Dec 13

S&P 500: +4%

Dec 12

100

Dec 11

Alphabet +50%

Dec 10

300

Dec 09

Apple +134%

Dec 08

500

Dec 07

% Return

900

Source: Bloomberg as at December 2017.

1 Soros, G. (2018). Only the EU can break Facebook and Google’s dominance | George Soros. [online] the Guardian. Available at: https://www.theguardian.com/business/2018/feb/15/ eu-facebook-google-dominance-george-soros

2

3

SICKLY TECH JULY 2018

Their growth has allowed these companies to become some of the largest in the world:

Industry

Source: Visual Capitalist, How Much. http://www.visualcapitalist.com/most-valuable-companies-100-years/

HERMES INVESTMENT OFFICE

In recent times, Netflix has been the star of the show:

Netflix relative to NYSE FANG+ index 140

130

120

110

100

90

We saw continued dramatic outperformance by tech in general and by the FANGs (Facebook, Amazon, Apple, Netflix and Google) in particular

Even the market ruckus in February earlier this year mysteriously failed to correct the leaders of the market – instead we saw continued dramatic outperformance by tech in general and by the FANGs (Facebook, Amazon, Apple, Netflix and Google) in particular, which benefit from the ongoing growth in internet commerce:

Amazon’s 2017 growth is almost four times the combined total value of 10 retailers that traditionally dominate US malls 200

Abercrombie and Fitch American Eagle Urban Outfitters

($bn)

150

100

Amazon’s year-to-date market cap increase

Gap Foot Locker Kohl’s Nordstrom Dillard’s JCPenney

50 Total market caps of mall staples 0

Source: FT

Macy’s

80

2017