It is reported that the share prices of major technology companies have soared over the past decade, spurred by the flooding of monetary policy in the United States, so this kind of investment does sometimes yield amazing returns.

But over the past year, the same investment philosophy has been hit by rising interest rates, inflation and other factors. As the control of the epidemic is relaxed$Zoom Video Communications (ZM.US)$和$Peloton Interactive (PTON.US)$Such as the so-called "epidemic benefit stocks" have fallen to the altar, coupled with the widespread sell-off of technology stocks, many once-popular stocks have caused heavy losses to investors. In this context, "defensive stocks", which have been snubbed by Wall Street for many years, have become the new favorite of investors.

In addition, the stock market downturn since the beginning of the year has led to the "longest listing shortage of US technology stocks in this century". At present, although some other industries are showing signs of recovery, experts are still cautious about the pace of recovery of technology IPO (initial public offering).

The US stock market will be free of technology IPO worth more than $50 million for 238 days as of last Wednesday, surpassing the 2008 financial crisis and the record set after the bursting of the dotcom bubble in the early 2000s, according to research by Morgan Stanley's equity capital markets team.

The American investment community is full of grief and gloom. The net worth of T Rowe Price's global technology equity fund has fallen 45 per cent so far this year; the flagship hedge fund of Tiger Global, at the helm of Chase Coleman, halved by the end of July; and Ark Innovation, Cathie Wood's flagship ETF fund, has also fallen 55 per cent so far this year. Since December, the assets under management of her ark investment management company (Ark Investment Management) have nearly halved.

The UK market has also performed poorly. Baillie Gifford's Scottish mortgage investment trust (Scottish Mortgage Investment Trust) fell 40% in the year to the end of August, while polar capital technology trust (Polar Capital Technology Trust) fell 22% in the year to the end of July. In the Japanese market, plummeting valuations of technology stocks and a weaker yen caused Mr. son's Softbank Corp. to post a record net loss of 3.1 trillion yen ($23 billion) in the second quarter.

Despite such a sudden reversal, few big-name growth investors have given up on their existing ways of investing-some of them believe that such a decline has instead created opportunities for cautious buying.

Growth investors are optimistic by nature. They firmly believe that we are in the midst of an once-in-a-lifetime wave of technology, and that a number of great companies will emerge during this period that will lead the future trend and achieve explosive growth. If they want to be successful investors, their task is to find these companies.

"some high-quality growth companies seem to be on sale at low prices." "it's a rare opportunity to make long-term bets on growth investments," said Kirsty Gibson (Kirsty Gibson), US equity manager at Baillie Gifford. I can't say it's comfortable now, but it's really exciting. "

The confidence of "wooden Sister" does not seem to have been hit at all by this year's losses. "Innovation can solve all problems, and the world is facing more problems today than it was two years ago." "Innovation is the key to real growth," she tweeted on Sept. 8.

While growth investors remain optimistic about technological change, many of them have made major changes to their investment strategies, focusing more on short-term profits and cash flow and actively looking for new ways to help technology companies in their infancy weather the downturn.

"you can't go back to the past," says David Odell, head of equity investment at Carmignac, a 33.2 billion-euro asset manager. No matter how high you think interest rates will rise, the rising cost of capital will have a continuing negative impact on growth companies. "

Where does the money come from?

Many prominent growth investors say that while the macroeconomic environment has made them more cautious in the short term, they still believe that the technological revolution has only just begun.

Some funds have adopted so-called "cross-border" strategies to diversify their investments into private and public companies. Some growth investors stress that they usually invest in a company for several years, so they can avoid short-term market fluctuations. Technology stocks are particularly vulnerable to higher interest rates and their potential future earnings will be undermined.

But instead of trying to predict the direction of interest rates, they focus on understanding whether the competitive landscape of the companies they invest in has changed. It is found that although the macro environment of these enterprises has changed, it has not destroyed the long-term potential of many enterprises.

The way T Rowe Price invests: imagine the size of a technology company in three to five years' time, and then identify companies that can grow by 30 to 40 per cent a year. Five of the top 10 holdings in the company's global technology fund come from the software industry, namely Atlassian, MongoDB, HubSpot, ServiceNow and Snowflake Inc Computing.

Julian Cook, a fund manager at the $1.39 trillion US asset manager, believes that while higher interest rates will weigh on the valuations of technology companies, the more important issue is the performance of these companies on fundamental indicators such as profits, revenues and free cash flow in the high interest rate environment over the next five years.

Some investors are dismissive of distant promises of profits. "We have shortened the investment period." Said Ben Rogoff, co-head of Polar Capital's global technology team. Half of his investment trusts are invested in software and semiconductor companies, including NVIDIA Corp, Taiwan Semiconductor Manufacturing Co Ltd and ASML Holding NV (ASML).

"your [company] technology may have a lot of potential and may change the world, but it's hard to be sure right now," he says. "

Investors are also becoming more and more picky about the profit path of enterprises. Carmignac's Odell agrees, saying that people's return expectations have shrunk from 10 years to two years. "it is clear that the market can no longer pay for illusory growth stories unless they can really prove profitability and create cash flow quickly." He added.

Potential growth enterprises must first resist the current supply chain disruption, inflation, tightening financing environment and other pressures in order to give full play to their long-term potential. As executives re-examine the industry's development model, investors are also trying to figure out how their companies will respond to the economic downturn. The most popular are cash-producing companies that have market share and pricing power and are less vulnerable to cuts in consumer spending-they cannot just be "epidemic-benefiting stocks".

"We need to pay more attention to the resilience and adaptability of these companies than ever before." Gibson of Baillie Gifford said. The fund manager's total assets under management fell to 231 billion pounds on June 30, down more than 1/3 from the same period last year.

"some companies will become stronger." She added, "We welcome companies that can 'reduce fat', but we will be cautious about those that 'lose muscle' because we don't want them to lose long-term development opportunities."

The sell-off in technology stocks is triggered by macro factors, so there is no difference. In other words, the market will not identify the cash flow situation, as long as it is growing stocks, there will be a sell-off. This creates a buying opportunity for investors to selectively increase their holdings of stocks whose share prices have fallen more than the decline in earnings in existing positions, or to increase new positions.

Mr Rogoff of Polar Capital says the growing convergence of valuations and growth potential between the next generation of SaaS and established internet companies creates a rare opportunity for investors to buy the former.

Several investors said they were optimistic about defensive stocks in the technology sector, such as semiconductor companies such as ASML Holding NV and Synopsys, as well as cloud computing and enterprise software companies, such as MongoDB, a developer of database programs. When faced with an inflationary environment, enterprise software can help companies reduce costs and increase productivity, and such software usually adopts an aperiodic subscription model.

They believe that the long-term structural trend is still unfolding. "the process of digitizing the economy and migrating workflows to the cloud is still moving forward." Says Julian of T Rowe. He added that some consumer-oriented companies made a lot of money during the epidemic and it was time to get back to reality.

Investors bullish on the outlook for growth stocks also say that the technological revolution has only just touched the tip of the iceberg in the global economy, such as energy, gene sequencing and synthetic biology.

Baillie Gifford's US investment team has increased its holdings of software companies such as HashiCorp and Snowflake Inc, as well as education company Duolingo and takeout platform DoorDash.

The challenge is next year.

While some people think that the sell-off in growth stocks has created an excellent buying point, not everyone will be mindless to buy.

"I feel that the open market will definitely have value in the next five years. The challenge is next year. " Philip Lafonte, founder of Coatue Management in New York, says he is a member of the Tiger Department and has received professional training at Julian Julian Robertson's Tiger Management.

Among growth investors, Mr Lafonte is one of the more pessimistic. During the plunge earlier this year, Coatue's hedge funds chose to unwind their positions. The hedge fund had more than 80 per cent of its cash positions in May, according to the data. The decision, along with the strong performance of short positions, helped the company's flagship hedge fund limit its net worth decline to 17.6 per cent at the end of August.

"things are getting worse, not better," Lavont said. " Other investors believe that while some stocks do show good value, the market is not cheap compared with the end of the dotcom bubble in 2003 and the end of the financial crisis in 2009. In their view, delusional attempts to copy the bottom will be in vain.

"I think there are some good opportunities," said Mr Rogoff of Polar Capital. However, although the dynamic price-to-sales ratio of software stocks has fallen from 25 times to 10 times, it is difficult to judge whether it will stop falling at 10 times. "

Another factor that makes potential bulls hesitate is that although the public market has been repriced, many investors have not yet written down their private company holdings. Baillie Gifford's Scottish mortgage investment trust offers a glimpse into the power of such writedowns: the agency revealed that it revalued its holdings of 351 private companies in the first half of this year, with an average writedown of 27.6 per cent.

After the market correction, private companies have become less attractive than public-market stocks, and increasingly picky venture capitalists have more cash in their hands. Instead of making any new private investments, Chase Coleman's Tiger Global has sharply reduced its overall equity position through hedge funds and increased its short position in the past year or so, according to people familiar with the matter. Even Softbank Corp. and son entered the "defense mode" and kept a lot of cash.

"because the sell-off is so intense, many good opportunities now come from the open market." "our standards for investing in private companies are higher than before because the competition for capital is fiercer and your competitors are public market stocks with lower valuations in your portfolio," said Baillie Gifford's Gibson.

When technology companies experienced a valuation bubble and then a sharp sell-off, it inevitably reminded market watchers of the ups and downs of the dotcom bubble in the late 1990s. But investors believe that while both periods do contain a period of irrational exuberance, there are still many differences.

"as far as the technology industry itself is concerned, it is much more mature than it was in the late 1990s, the earnings data are much more solid than it was then, and the starting point of valuation is fundamentally different." Said Rogoff of Polar Capital.

Explore a new model

When Klarna, the pioneer of the buy-and-pay model, announced plans to raise $800m in July, its valuation shrank from $46 billion to $6.7 billion. Stir up a thousand waves in the venture capital circle. The plummeting valuation of Klarna, once the most highly valued technology start-up in Europe, is seen by many as one of the most striking signs of the future woes of the private market.

Some investors are starting to try other investment models. Coatue is raising $2 billion for the structured equity strategy of the Tactical Solutions fund, which provides loans to private companies that are in financial trouble but do not want to dilute their stakes because of undervalued financing. The structured equity they invest has the dual attributes of both debt and equity, usually including convertible bonds, preferred shares or debt warrants.

"We need to use this crisis to explore new models." "structured trading has become an offensive way for us to provide a solution to founders in an economic downturn," Lavont said. We hope they can continue to expand their business, make attractive acquisitions, and expand their team. There are many new forms of financing that can support founders and prevent them from being forced to sell off their shares. "

Atreides Management, founded by Gavin Baker, a former Fidelity fund manager, is also preparing an opportunistic venture capital fund. According to public information released in July, the fund will take advantage of the current downturn in risk markets to participate in structured equity transactions and help privatize listed companies.

"'I am greedy when others are afraid, and I am afraid when others are greed.' This is easier said than done. " "We believe that the next nine to 12 months will be one of the most suitable periods of greed in history," Baker quoted Warren Buffett as saying: "We must increase the allocation of capital in the area of risk."