As the easing cycle begins, following one of the most aggressive tightening phases in decades, investors’ preference for short-duration assets may come under scrutiny. With fixed-income instruments, which have been yielding mid-single-digit returns, expected to offer diminishing competition in the coming quarters, risk appetite could gradually shift toward longer-duration assets.

However, over the past three years, this narrative has unfolded differently. The performance disparities among assets with varying duration profiles have been well-documented, including on BRIIDGE. One notable example can be found in the electronics and computer distribution industry.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

While the broader Technology sector underperformed the market by more than 40%—a result of high-growth, high-valuation companies whose discounted future earnings took a hit—this industry outperformed the market by 20% on an equal-weighted basis. With an industry-sector performance spread nearing 70%, could this signal a potential opportunity on the horizon? At the peak of the speculative cycle in Q2 2021, the sector’s median price-to-sales ratio had doubled to 6.4, whereas the electronics and computer distribution industry maintained a ratio of just 0.3, a figure consistent with pre-pandemic levels.

Despite these depressed valuations, investors were not deterred by the subsequent volatility in sales growth, instead recognizing the value in longstanding partnerships that facilitated service provision to a wide array of third-party actors.

Another factor supporting the industry's short-duration asset nature is its lower median gross profit margins. Even with higher debt levels relative to the broader sector, the combination of depressed and stable valuations contributed to the industry’s resilience amid a rising interest rate environment.

In contrast, several other industries within the Technology sector experienced mechanical valuation contractions, following short-term market boosts from temporary demand surges—many of which were further amplified by extraordinary fiscal and monetary policies.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

While the broader macroeconomic picture helps explain some of the performance spread, several idiosyncratic factors have also contributed. For instance, operational excellence in the electronics and computer distribution industry is reflected in its ability to maintain net income levels comparable to the sector, despite gross profit margins standing at just one-quarter of the sector median.

Moreover, the industry’s business-oriented customer base has seen heightened demand for data centers and cloud infrastructure, indicating more predictable cash flows tied to service-oriented business lines. As the monetary easing cycle continues over the coming quarters, relative valuation compression is expected, assuming no significant changes in the underlying drivers.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA