Once again, technology is one of the best-performing sectors this year and the diverse ALPS Disruptive Technologies ETF (CBOE: DTEC) is participating in that trend.
Up more than 30% over the past 90 days, DTEC is benefiting from increasing adoption of cloud computing, cybersecurity, and Internet of Things (IoT) technologies, among other catalysts.
Cloud computing is rapidly growing, was doing so prior to the pandemic, and will continue doing so after the virus is quashed. Declining costs in cloud adoption and increasing ease of use are among the factors driving the cloud computing boom. Several DTEC components have first-mover advantages in various cloud niches and are building attractive competitive moats in the space. CLOU’s IaaS exposure should beneficial to long-term investors.
The increasingly digital and connected exhibiting significant growth and is expected to continue to grow over the coming years. The cloud computing industry that was estimated to be worth $188 billion in 2018 is expected to be worth over $300 billion by 2022, a nearly 15% annualized growth rate. IaaS is a major contributor to that growth.
“The widespread shift to working and learning from home, and the shutdown of many bricks-and-mortar retail stores, has accelerated the adoption of both cloud-based computing and online shopping, to the benefit of many companies,” reports Eric Savitz for Barron’s.
DTEC tracks the Indxx Disruptive Technologies Index, which identifies companies using disruptive technologies across ten thematic areas, including Healthcare Innovation, Internet of Things, Clean Energy and Smart Grid, Cloud Computing, Data and Analytics, FinTech, Robotics, and Artificial Intelligence, Cybersecurity, 3D Printing, and Mobile Payments.
Earnings Opportunities
With second-quarter earnings season looming, expectations are in place that those reports will be ugly due to the coronavirus. However, the tech sector’s earnings and revenue retrenchment is forecast to be mild. In fact, only utilities revenue and profit contraction will be less bad than tech, according to Refintiv data.
Some analysts aren’t backing away from the sector. Rather, some see more upside ahead for already stout tech names across an array of segments.
“We believe tech stocks could still go another 20%-30% higher,” writes Wedbush analyst Dan Ives. “While fears of a second wave and a soft macro will cause volatility over the coming months, especially with earnings season around the corner, we remain firmly bullish on tech for the rest of the year with cloud and cybersecurity names front and center.”
Other technology funds to consider include the Technology Select Sector SPDR ETF (NYSEArca: XLK) and the Fidelity MSCI Information Technology Index ETF (FTEC).
For more on cornerstone strategies, visit our ETF Building Blocks Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
