Investment

As the tech bubble deflates, family businesses look compelling to investors

In the end, it took a month to slice a quarter off the worth of the world’s top cryptocurrencies and speculative growth stocks. 

Anxiety levels remain high. But panic is far from universal. And stocks in listed family businesses have easily outperformed the rest of the market.

The five largest companies in Family Capital’s ranking of the 750 largest family businesses, compiled with PwC, have only suffered an average share price fall of 1.2%, against a 9% fall in the tech-driven S&P 500.

US retailer Walmart, the largest of them, suffered a 3.6% share price fall. Volkswagen rose 3.7%. Exor, led by the Agnelli family, fell 6%.  Ford, haunted for years by Tesla (down 14.3%) fell 4.3%. 

Berkshire Hathaway, long pilloried for its cautious approach to technology investing and cryptocurrencies, rose 4 %.

The five largest companies in Family Capital’s ranking of the 750 largest family businesses, compiled with PwC, have only suffered an average share price fall of 1.2%, against a 9% fall in the tech-driven S&P 500

Elsewhere, Spain’s March Asset Management family business fund only lost 3.2% against a fall of 6.4% in the MSCI Index and a 6% fall in the S&P 500.  

These are early days, but family businesses with a strong balance sheet and decent franchise could now regain their traditional lead over the rest of the market, as worries grow over a possible war in Ukraine and several hikes in interest rates 

As Family Capital pointed out on 30 December, soaraway gains made by growth stocks and crypto in 2021, were an anomaly, eerily reminiscent of internet stocks that gained momentum in 1999, only to be trashed the year after.

Current uncertainties have upset long-term prospects for growth and confidence that investors will continue to buy shares every time they did. Unless the news flow gets a lot better (or a lot worse) the market is facing a risk on/risk off situation as traders swing their money behind one trend, then another. 

The total value of cryptocurrencies in issue has fallen by 25% to $1.75 trillion in a month, according to CoinGecko. Bitcoin, supposed to be replacing gold as a store of value in hard times, according to its fans, is down 25% in a month, while the yellow metal has gained 1.6%.

Terra’s Luna coin topped the league table with a gain of 20,000% from nearly zero in 2021 thanks to the buying power of its fan club.  Over the last month, it has slumped 35%. It has also emerged that Meta, previously known as Facebook, wants to wind up a project to launch its own cryptocurrency, known as Diem.

The slump in cryptocurrencies does not mean the end for its blockchain technology. It retains enormous potential to achieve quickfire asset transfers without needing the expensive services of intermediaries. But proponents may need to exercise patience.

Expectations have ebbed in the growth universe. Bessemer Venture Partners, for example, created an index for companies using the cloud to develop their systems. It is down 20% in a month, along with the broader Nasdaq index. Cathie Wood’s Ark Innovation ETF has slumped 26%, partly out of concerns that some of its holdings could become illiquid.

Thematic meme stocks backed by retail traders have been trashed, led by GameStop, which has fallen 29% in a month. The Roundhill Meme ETF is down 26%.

However, the NYSE Fang-plus index for leading internet stocks has “only” fallen 15% in a month. Several of its constituents have developed into cash-rich quality businesses which could see them through hard times. Alphabet, owner of Google, is down 12% in a month, while Apple dropped 8.4%. 

Netflix, down 39%, has revenue, but its business base is narrow and subscribers can all too easily turn off their service to tune into its competitors, an experience that other tech companies may soon discover. 

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