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When it comes to politics, advisors have to walk a fine line. In today, increasingly contentious, partisan environment, it's a known fact that advisors probably shouldn't engage in political conversations on a personal level.
Asking a client for whom he or she voted? That's out the window. It's just too sensitive of a topic and it's unlikely to change anytime soon. However, advisors do need to talk politics with clients because, regardless of which party is running the show on Capitol Hill, for bettor or worse, political implications often carry with them investment implications.
This is a point worth remembering because, once again, big technology companies are in politicians' crosshairs. “Tech” is being used loosely here because if we're going to get precise about sector implications, the companies drawing the ire of politicians are from that sector, as well as communication services and consumer discretionary.
Point is Google parent Alphabet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB), among others really aren't liked all that much by politicians right now. That's relevant because clients typically love these stocks, money managers often allocate to these names or overweight them to juice returns and they account for significant percentages of well-known index funds, growth and otherwise.
Bipartisan Dilemma for Investors
What's at play today is about much more than Republicans bemoaning the control of information on various platforms and allegations of bias. That's a rabbit hole and one best left for another forum. Of interest to advisors is that the aforementioned names are increasingly viewed as monopolies or crushers of what little competition they have in the respective spaces and there's bipartisan momentum – believe it or not – for this debate.
“There has also been a steady drumbeat of concerns that these large online platforms have too much power and are stifling competition in the online marketplace. Democrats on Capitol Hill who oversee antitrust policy, some Republicans, and antitrust regulators are squarely focused on these tech giants engaging in perceived anti-competitive behavior, such as buying out upstart rivals before they can become a competitive threat or refusing to deal with rivals,” according to Invesco research.
Again, the big takeaway here is that Democrats and Republicans finally have something they agree and that's increasing scrutiny of big tech. In the prior Congress, the House Judiciary Subcommittee on Antitrust, under the leadership of Chairman David Cicilline (D-Rhode Island) conducted a 16-month investigation resulting in a 450-page report, concluding that Facebook, Google, Amazon, and Apple engage in anti-competitive practices.
Think about it this way. Ask a client to name an online retailer. They'll say Amazon 99 times out of 100. Ask the same client to name an internet search engine. They'll probably say Google everytime.
“Several House Judiciary Republicans, including current Subcommittee lead Republican Ken Buck (R-Colorado), released a separate report, which also found anti-competitive behavior by the platforms and signaled bipartisan interest in some revisions to the antitrust laws,” adds Invesco.
What Could Come of This
Today, advisors in a holding pattern because Congress has gone after big tech before, obviously to no avail. However, history doesn't always repeat and with the issue generating bipartisan support and mainstream buzz, it pays to be prepared when it comes to answering clients' tech queries.
Among the suggestions on the table are breaking up big tech – imagine Amazon without Amazon Web Services or Apple without the App Store – and preventing companies like this from acquiring competitors that are still in their formative stages.
Potentially adding to clients' concerns is that this isn't just a federal issue.
“Last October, the DOJ brought an action against Google for engaging in anti-competitive behavior, and in December, more than 30 state attorneys general (AGs) joined the DOJ suit. At the end of last year, Facebook had been hit by lawsuits brought by the FTC and 46 states for anti-competitive behavior, most notably for buying up rivals Instagram and WhatsApp,” adds Invesco.
For now, there's no crystal ball telling advisors how the aforementioned scenarios will play out and with the stocks mentioned seemingly undaunted freight trains that tack on billions worth of market value almost everyday, not being allocated to some of these names is going to raise some eyebrows. How litigation brought by federal and state regulatory agencies plays out will likely answer clients' questions regarding how their tech holdings will look in the future.
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