Tudor portfolio manager on where she’s finding alpha in the tech

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With the prospect of higher interest rates looming, 2022 has already been a tough year for the tech sector. The Invesco QQQ ETF has fallen sharply year-to-date but one tech investor is braving the turbulence.  

Ulrike Hoffmann-Burchardi recently launched a new strategy within Tudor Investment Corp. called T++ with a specific focus on technology stocks. She sat down with Delivering Alpha to discuss her current hedging strategy along with where she’s finding alpha in the technology sector.

(The below has been edited for length and clarity. See above for full video.)

Leslie Picker: What’s it like being a tech investor right now, given this whole regime change that’s really gone on in the market?

Ulrike Hoffmann-Burchardi: We have this exciting step of a next generation of digital transformation, one that is fueled by data. We predict that data is going to grow more than 100 times over the next 10 years. And this gives rise to tremendous investing opportunities in data infrastructure, in semiconductors, but also in digital and data-first businesses. So lots to be excited about. And then to the second part of your question, what is going on right now? It’s less to do with the prospects of these new technologies but the fact that we have come up with unprecedented levels of fiscal and monetary stimulus. And that has led to inflationary pressures in our economy that now the Fed seeks to rein in with higher rates. 

And so with that backdrop, everything else being equal, this means low equity valuations. So we are discounting future cash flows with higher discount rates. But I think one thing that’s important to recognize is that this tide of fiscal and monetary stimulus has lifted all boats, not just technology. And it’s interesting to see what is still floating when this tide recedes. And here’s who I still see standing: those companies with stronger secular tailwinds, the best business models, and world class leadership. And I think it’s hard to find another sector that has so much of all of these. So maybe another way to put it is that the Fed can change the discount rate, but not a digital inflection of our economy.

Picker: As you see these valuations come down pretty sharply, at least in the near term, does that concern you? Are you seeing that as more of a buying opportunity?

Hoffmann-Burchardi: If you actually look at these sharp asset price corrections that we have seen, you can look at them and try to invert what these different asset classes price in, in terms of future rate hikes. And so if you look at high-growth software in particular, this now prices in a one percent increase in the 10-year rate, whereas if you look at the Dow Jones, it is still at a zero percent rate hike. So it does look like there’s at least some diversity of risk being priced in. And it sounds like right now, maybe the sharp corrections in high-growth software have, at least in the short term, more to do…