Key takeaways:

• Rising interest rates were the single-biggest factor weighing on tech stocks in 2022

• Total trading activity in tech stocks decreased, but investors that retained exposure were slightly more bullish than in 2021, diversifying their tech exposure across a broader cohort

After a couple of successful years for tech stocks and the buy-now pay-later segment, the slowdown that emerged in late 2021 continued throughout this year.

The information technology sector was the worst performing sector across the ASX in 2022, with a decline of 30.6% at the time of writing. It a similar story for the Nasdaq, down 29.4% over the same period. These losses are even greater if including the tech-driven BNPL segment, where various names shed over 80%. 

From software, to e-commerce, consumer electronics, semiconductors, and even electric vehicle manufacturers - no cohort was spared from heavy selling pressure.

With the sector underperforming, and the macro environment prompting a risk-off approach, let see how the Selfwealth community responded to the change in fortunes for the tech segment.

Why Tech Stocks and BNPL Underperformed in 2022

A number of headwinds dampened enthusiasm for tech stocks and BNPL shares in 2022.

Arguably the biggest factor was rising interest rates, with central banks around the world tightening monetary policy - and continuing to do so - at the fastest rate in decades. 

With interest rates jumping sharply higher, there was a broad sell-off across risk assets. This included tech shares, growth stocks, and even higher-risk assets like cryptocurrency.

Higher interest rates tend to hurt tech stocks for several reasons. 

FIrst, lofty valuations come into focus ahead of an expected slowdown. Secondly, as growth slows, cash flow becomes more uncertain. Thirdly, higher rates mean higher costs to service debt, often prompting companies to borrow less, and limiting their means to reinvest for growth. 

These issues make it harder for the market to assess the present value of a future stream of cash flow. This is why unprofitable companies, or those with distant cash flow were hit hardest. At the same time, the risk-free alternative available to investors has improved, with cash and bonds offering higher returns than a year ago.

Elsewhere, industry-specific trends hurt many tech stocks. For example, concerns about an economic slowdown filtered through to areas like advertising, e-commerce, and semiconductors. The end of the pandemic - a boon for many tech businesses due to work from home trends - also weighed.

Community Trading Trends

The combined value of all tech stocks and BNPL shares traded throughout 2022 fell substantially, down 42.3% against the year prior. Naturally, a big part of this was due to the sharp fall in share prices across the information technology sector. 

However, reduced trade activity also contributed. In 2022, the total number of trades across the most popular names in this cohort was down 44.2%.

The uncertain macroeconomic environment, including rising interest rates and the risk of a recession, likely played a key role in subdued trading interest across the sector. Furthermore, the significant underperformance of tech shares and BNPL stocks in 2022 was a headwind that prevented any momentum building up as it did during the two preceding years.

Nonetheless, despite weaker interest across the board, buy-to-sell activity rose modestly. The buy-to-sell ratio for the total dollar value of tech and BNPL trades rose from 51.8% to 53%, while the same metric for trade numbers increased from 62.1% to 63.1%. 

Top 20 Tech and BNPL Stocks in 2022 (by trades)Stock

Buy-to-SellRatio

Share price performance (YTD to Dec 14)

Rank byValue Traded

1. Brainchip (ASX: BRN)

58.2%

7.4%

1

2. Zip (ASX: ZIP)

55.4%

-85.7%

2

3. Tesla (NASDAQ: TSLA)

80.9%

-55.5%

3

4. Xero (ASX: XRO)

73.2%

-46.9%

4

5. Appen (ASX: APX)

51.2%

-76.8%

8

6. Square (ASX: SQ2) 

46.5%

-40.9%

6

7. Apple (NASDAQ: AAPL)

73.3%

-19.4%

5

8. EML Payments (ASX: EML)

60.5%

-80.2%

9

9. Megaport (ASX: MP1)

64.1%

-60.5%

12

10. Microsoft (NASDAQ: MSFT)

76.7%

-23.5%

11

11. Tyro Payments (ASX: TYR)

62.6%

-52.5%

13

12. Nvidia (NASDAQ: NVDA)

68.5%

-39.9%

20

13. Codan (ASX: CDA)

69.1%

-58.4%

14

14. Meta (NASDAQ: META)

78.2%

-63.9%

17

15. Amazon (NASDAQ: AMZN)

82.0%

-45.1%

25

16. Life360 (ASX: 360)

58.4%

-39.2%

15

17. Computershare (ASX: CPU)

48.5%

33.0%

10

18. Nearmap (ASX: NEA)

39.9%

35.5%

19

19. Sezzle (ASX: SZL)

53.0%

-83.6%

16

20. Alphabet (NASDAQ: GOOGL)

81.5%

-34.4%

24

In 2022, the top 10 tech stocks traded by value, including BNPL names, represented 66.8% of all money flow throughout the sector. This is about 8 percentage points less than the comparable result for the energy sector, albeit the result is still very high.

Meanwhile, the top 10 most actively traded stocks across the cohort represented 56% of all trades.

Both of the results are well down on the corresponding figures for the year prior. In 2021, the top 10 accounted for 76.7% of the total dollar value of tech trades, and 65.6% of trades made.

These results clearly show that Selfwealth members diversified their tech investing in 2022, perhaps as means to retain exposure to the sector, while also hedging risk. Whereas money flow was concentrated on a smaller group of names in 2021, this year saw investors spread into other names. 

This was likely due to the disappointing share price performances by some of the most popular stocks, albeit the buy-to-sell ratios for most of the cohort remain very high. In fact, the stocks with the most bullish sentiment are US tech names, with seven in the top 20.

In terms of key names, the biggest shift was at the top of the list of the most popular stocks. 

In 2021, Zip (ASX: ZIP) was the most actively traded name, accounting for 38.5% of all money flow across the sector, and 27.0% of all trades. This year, Brainchip (ASX: BRN) found itself the highest profile tech stock, with a smaller, but still significant portion of trading activity. It represented 15.4% of the total dollar value of trades across the sector, and 13.2% of all trades.A huge factor behind this was the downfall of the tech-driven BNPL sector, with Zip shares in 2022 attracting just 11.2% and 11.7% of money flow and trades respectively. On top of that, liquidity in former high-flyer Afterpay dried up nearly 80% after it was acquired by Square (ASX: SQ2).

Highlights Behind the Top 20

Household names Apple (NASDAQ: AAPL) and Tesla (NASDAQ: TSLA) faced a number of issues in China this year. The nation strict COVID-zero policy hampered manufacturing at times. On top of that, growing concerns about a recession weighed on expectations for consumer demand.Sticking with the mega-tech stocks, an advertising slowdown weighed on companies like Meta (NASDAQ: META) and Alphabet (NASDAQ: GOOGL). In the case of Amazon (NASDAQ: AMZN), its growth slowed down dramatically as the world exited the pandemic and stay-at-home orders ceased.Closer to home, buy-now pay-later stocks like Zip (ASX: ZIP), Square (ASX: SQ2), and Sezzle (ASX: SZL) were crunched due to concerns about increasing regulatory restrictions and the prospect of a recession. Furthermore, higher interest rates were a contributor to growing bad debts. Losses continued to swell across the segment, prompting another round of capital raises.Semiconductor stocks also came unstuck in 2022 as investors bet demand for consumer electronic goods would slow. Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) led the fall. ASX-listed chip-maker Brainchip (ASX: BRN) fell nearly two-thirds from the all-time high it posted in January, at the time of writing clinging onto a small gain for the year.It was a torrid year for machine-learning AI business Appen (ASX: APX), which hit a six-year low. Its dire performance in 2022 was due to several earnings downgrades. That followed decreased investment from big tech in advertising-related AI projects amid Apple iOS platform changes.Elsewhere, broader risk-off sentiment driven by rising interest rates weighed on names like Xero (ASX: XRO), Megaport (ASX: MP1), Codan (ASX: CDA), and Life360 (ASX: 360). Regulatory issues hurt EML Payments (ASX: EML), while momentum never picked up for Tyro Payments (ASX: TYR) after its results at the start of the year showed slowing growth.Nearmap (ASX: NEA) and Computershare (ASX: CPU) were the only tech stocks in the top 20 to deliver large returns in 2022. The former was helped by a takeover bid that has since wrapped up. On the other hand, Computershare set an all-time high, with the company benefitting from rising interest rates due to the extensive cash it collects across various divisions.