In a liquidity fueled market rally, investors may find opportunities in targeted segments of the market, including potentially more growth-oriented sectors and exchange traded funds.
“We are coming from a period in which liquidity has been the major driver of asset prices,” Allianz’ chief economic advisor Mohamed El-Erian said on CNBC. “What the market is telling you today is, ‘You know what? That is no longer sufficient to maintain prices at a high level.’ You need something more, and that something more is fundamentals.”
Consequently, El-Erian argues that investors should focus on higher risk and less liquid opportunities that central banks cannot affect as easily, such as start-up disruptors and private equity.
“Don’t give up on some really exciting opportunities that are happening in the start-up world, in the private equity world,” El-Erian added. “There’s a lot going on, especially in tech.”
Investors who want exposure to some innovators in the tech industry may turn to small-capitalization tech stocks. For example, the PowerShares S&P SmallCap Information Technology Portfolio (NasdaqGS: PSCT), which is comprised of tech companies taken from the S&P 600 SmallCap Index, includes a 57.7% tilt toward small-caps and 42.3% to micro-caps.
The SPDR S&P Software & Services ETF (NYSEArca: XSW), which takes an equal-weight approach to software and services companies, holds 22.5% in micro-caps, 32.7% in small-caps and 30.7% in mid-caps.
Additionally, the PureFunds ISE Cyber Security ETF (NYSEArca: HACK) and recently launched First Trust NASDAQ CEA Cybersecurity ETF (NasdaqGM: CIBR) provide exposure to a growing cyber security industry as a response to increased scrutiny over cyber weaknesses amid some high profile hacks. [Cyber Security ETF Swells as Other Tech ETFs Dither]