Today's Tech Winners Likely to Be Tomorrow's Losers, Arnott Says

(Bloomberg) -- Get ready for the FAANGs to start hurting your portfolio.

So says Rob Arnott, who helps manage $205 billion at Research Affiliates.

If you own a basket of the world’s most valuable technology stocks, you’re probably sitting on a lousy long-term investment, wrote Arnott, Bradford Cornell and Shane Shepherd in a paper published on Monday titled “Yes. It’s a Bubble. So What?”

Arnott and his colleagues point to historical data that show the vast majority of global stock market leaders -- the top 10 ranked by market value -- underperform over the subsequent decade. Their high prices tend to reflect a level of optimism that usually can’t be matched by reality, they contend.

At the end of January, the seven stocks with the greatest market capitalization in the world were all tech stocks: Alphabet Inc., Apple Inc., Microsoft Corp. Facebook Inc., Amazon.com Inc., Tencent Holdings Ltd. and Alibaba Group Holding Ltd. History suggests that, of the seven, at least six will underperform the market over the next 10 years, the authors wrote.

“I don’t want to take those odds,” Arnott said in a telephone interview. “People are welcome to say, ‘This time is different,’ but people have been saying that forever.”

His advice: buy value stocks, both in the U.S. and globally.

For more on Arnott’s view, read Bloomberg’s David Wilson

To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella, Vincent Bielski

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