How sustainable is current tech-stock dominance? Andre Köttner shares his thoughts

Andre, the coronavirus crisis has upset stock markets. But one sector seems to have survived the turmoil completely unscathed: US technology companies. Why is that?

That's true. No sector has yet come through the crisis as well as the large IT groups. Just look at the quarterly sales of the Big Five from the USA: Apple, Amazon, Microsoft and Facebook have reported double-digit growth figures. The only exception is Alphabet, which has "only" remained stable. This is simply due to its business model, which depends heavily on advertising revenues. That’s less the case for the other companies. They were better able to take advantage of the trend to stay at home and increased digital communication.

Of course, the question is: will this remain the case?

Correct. And I’m certainly not taking that for granted. Take a traditionally stable company like Coca-Cola. Even its sales have fallen by 20 percent compared to the previous year because of coronavirus. Now let's think one year ahead and assume that we will somehow have returned to normality. In that case, Coca-Cola should recover just as quickly and return to its old level. That would mean that this year’s losers would be the ones achieving the highest growth next year. That could be exciting too.

Are there political dangers too? The bosses of four of the five big companies mentioned above – Microsoft is the exception – have recently had to testify before the US Congress.

I personally do not believe that the Americans will smash their best companies. They are far too important to the US’s economic dominance. And the Trump administration is also introducing industrial policy that massively favours corporates. You only have to think of the pressure that the government is currently building up against TikTok, WeChat and Huawei. It’s not clear to me what this has to do with fair competition. Of course, China is not one bit better. To the contrary. But it is clear that the Americans are aware of competition from China and are taking it seriously. I cannot imagine that they would weaken their own companies in such a situation.

It almost sounds as if the Americans are afraid of competition from the Far East. Is that really the case?

I myself spent two and a half months in Silicon Valley. I visited a lot of companies there, from the smallest start-ups to some of the largest companies in the world. When I asked people who they took seriously as a competitor, no European names came up, but Chinese names very often did. And rightly so: what the Chinese have achieved with Huawei, for example, over the past 30 years is in no way inferior to what Apple or Amazon have achieved. Huawei has 188,000 employees, generates over 100 billion euros in sales and is number one in many of its markets worldwide. Apple itself says that it has never had a competitor like Huawei. The battle between the USA and China has only just begun.

You manage the DWS Akkumula fund. IT stocks are currently the largest sector in the fund, accounting for 22 percent of fixed assets, but of course there are other sectors too. What are you looking at particularly closely right now?

In the current environment, the healthcare sector is obviously exciting. Anyone who makes drugs is currently doing steady business. The situation is somewhat different for medical technology. But even though operations to implant artificial hip and knee joints are currently being postponed, they are not being cancelled and will be made up for quickly. That's why health care as a sector has a stabilising effect and looks interesting to us as a counterbalance. The same applies to basic consumer goods such as food. In the financial sector, we tend to concentrate on stock markets or rating agencies, i.e. companies that can benefit from unsettled markets.

Let's finish by talking briefly about Coronavirus and its future development. Despite optimism on the stock markets, it is still completely unclear how things will unfold. How do you deal with that kind of risk?

We try to combine the best of two worlds. We have very dynamic companies in our portfolio that are growing aggressively and benefit from strong economic growth. This includes a great many from the technology sector. But we also have companies that are very stable and defensive, for example in the healthcare sector and consumer goods. If the economic situation becomes difficult, those companies should ensure a certain risk balance in the portfolio. Both sides are well represented in the fund, so it should be well positioned.