- COVID-19 has accelerated the dominant digital transformation trends in the information technology sector including ecommerce, cloud computing, and digital payments.
- The election may affect some companies but in general, there are too many other factors that may be more salient than the election in changing the outlook for the sector.
- Tech companies have come under scrutiny by politicians on both sides but it's too soon to speculate on what any added regulation could look like.
Technology has transformed modern life. Not only has technology changed the way people work and connect, it's also changed the investment landscape. The tech sector has been leading the market to new highs in 2019 and year-to-date in 2020 as businesses deliver ever-more critical advancements.
Viewpoints spoke with Ali Khan, co-sector leader of the technology team, analyst for Fidelity® Disruptive Technology Fund (FTEKX), and portfolio manager for the Fidelity Select Software and IT Services Portfolio (FSCSX), to find out what he's keeping an eye on in the election and beyond.
How do elections affect the tech sector in general? Are there any historical trends?
Elections and your money
Khan: Every sector of the economy is influenced by government policy and tech is no different, but tech tends to be less directly impacted. Tech is the most global sector of the economy, so international relations are often just as important as government policy in a particular country.
What are the dominant themes you're keeping an eye on in the fourth quarter?
Khan: In terms of fundamental trends, digital transformation remains the most important trend in tech right now—both for us as individuals and for companies in every industry. The pandemic has accelerated several of the trends that were already in place: ecommerce, digital payments, cloud computing, etc. Each part of the digital transformation umbrella has been sped up.
In terms of policy, I keep a close eye on the different positions on regulation, immigration, climate change, and taxes, as well as US-China relations, as each have the potential to influence tech.
Do you think the election will change your general outlook for the sector?
Khan: I try as much as possible to concentrate on the fundamentals. To the extent that government policy influences the fundamentals, it is possible that the election can change the trajectory of certain companies and categories, but it isn’t black and white. There are too many other factors so I don't think the election alone has the potential to change one’s overall outlook for the sector.
When it comes to the election, do you see any potential differences for the sector if a Democrat is elected to the White House vs. Republican? And what about a divided Congress?
Khan: I'm not an expert on politics, but it seems like the results of the Senate and House races will be just as important as the Presidential election.
People are concerned about the size and influence of big tech companies, Congress has held hearings, the president has indicated some concern, do you think one party or the other would be more likely to continue investigating?
Khan: The increased scrutiny over big tech companies is bipartisan, as evidenced by the recent hearings, even if the reasons are different for different parts of the political spectrum. This is understandable given the size and influence of these companies, but it is important to look at each company individually vs. casting them under the same lens just because of their size.
Social media is different from search, which is different from hardware, which is different from ecommerce, which is different from cloud computing, as an example. And anti-competitive behavior is different from data privacy, which is different from content moderation.
And leaving aside politics, what do you think about the possibility of breaking up tech companies?
Khan: Again, I don’t think it is right to look at each of the big tech companies under the same umbrella. Each of the companies operates in different categories, with different businesses within each. It is too early to speculate on whether breaking up any of the companies is possible, and also whether it would strengthen or weaken the companies. The government obviously has to balance common sense reforms and ideas with making sure not to put the largest companies in the US at a competitive disadvantage vs. our competitors globally.
Both Democrats and Republicans have talked about the possible need to regulate social media. Do you see that playing out differently under one or the other regime? How does that affect your outlook for those companies?
Khan: It's unclear. I would note, however, that the social media companies themselves have proposed common sense regulations.