In a year dominated by the resurgence of the technology sector, a curious question emerges on the minds of investors: is it time to reconsider the balance between the soaring heights of technology stocks and the seemingly downtrodden biotech industry? The contrasting fortunes of these two sectors have caught the attention of market analysts, raising the possibility of a strategic shift in investment focus.
A decade of dominance and the unraveling AI hype cycle
The past decade has witnessed the unrelenting rise of technology and tech giants, dictating market trends and capturing the zeitgeist. The pandemic only accelerated this dominance, with select tech stocks—Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla, and Meta Platforms—commanding the market narrative in 2023. But, the concentrated nature of this surge, with only 15 stocks contributing significantly to returns, raises concerns about the sustainability of the rally. Mike Seidenberg, manager of Allianz Technology Trust Ord, cautions against a weak rally and emphasizes the need for broader market participation.
The catalyst fuelling this tech surge is undeniably the explosion of interest in AI. OpenAI’s ChatGPT, launched in November 2022, showcased the tangible applications of AI, from medical diagnostics to investment decisions. The AI hype reached fever pitch in 2023, with notable success stories like Nvidia, whose shares soared over 200%, propelled by the demand for AI-driven products. Yet, signs of a ‘hype cycle’ emerge, prompting investors to ponder the sustainability of this momentum.
Navigating the tech to biotech rollercoaster ride
In stark contrast to tech’s triumphant narrative, the biotech industry finds itself facing headwinds in 2023. The Nasdaq Biotechnology Index, lagging behind its tech counterpart, reflects the challenges besetting the sector. Higher interest rates and concerns over drug price negotiations have dampened investor enthusiasm. The aftermath of a post-pandemic boom, coupled with a tough fundraising environment, has led to underperformance and a difficult market for biotech companies.
Some investors view this downturn as a predictable part of the sector’s cyclicality. Ailsa Craig, manager of International Biotechnology Ord, notes that biotech tends to move through cycles, with peaks of hype followed by periods of depressed valuations. The recent weakness, according to her, presents an opportunity for investors to enter at an attractive point, especially considering the sector’s historical resilience and the prevalence of mergers and acquisitions.
Exploring investment avenues and diversified opportunities
Investors eyeing a strategic pivot have various avenues within the biotech realm. International Biotechnology Ord, trading at a discount, is one such opportunity. Ailsa Craig emphasizes the cyclical nature of biotech investing, pointing to historical patterns of boom and bust. Bellevue Healthcare (BBH), a diversified healthcare trust, offers exposure to biotech within a broader healthcare portfolio, potentially providing a more stable investment environment.
The contrasting fortunes of tech and biotech also find reflection in the strategies of seasoned fund managers. Peter Hewitt, manager of CT Global Managed Portfolio Growth Ord, acknowledges the potential of both sectors, holding positions in biotech-focused trusts like BBH while also capitalizing on the AI opportunity through investments in tech-focused trusts.
As the tech and biotech industries navigate divergent paths in 2023, investors are presented with a unique conundrum. Is it time to capitalize on the exuberance of technology or explore the potential opportunities in the resilient biotech sector? The answer lies in the delicate balance of market dynamics and investor foresight. As the hype surrounding AI in tech faces scrutiny, the more grounded and robust drivers of biotech, from an ageing population to M&A activity, could offer a compelling alternative. The question remains: In a market of contrasts, where will contrarian investors find their optimal path?
