Amidst other headlines, technology is still performing very well, as highlighted by a year-to-date gain of more than 18% for the S&P 500 Technology Index.
And for all the talk about the previous spike in 10-year Treasury yields, the ALPS Disruptive Technologies ETF (NYSE: DTEC) is still in the green year-to-date.
DTEC remains relevant today due not only to its leverage disruptive and innovative growth stocks and its diversified sector mix (it’s not a dedicated tech ETF), but also because concentration risk is again creeping up in traditional cap-weighted tech ETFs.
“Information technology is a highly concentrated sector, with just a handful of companies representing more than 50% of the sector’s weight—including the two behemoths Apple and Microsoft,” according to Charles Schwab research.
Not only does DTEC provide equally-weighted exposure to 10 disruptive themes, but none of its holdings exceed a weight of 1.36%, meaning single equity risk is minimal within the fund.
In terms of near-term fundamental tailwinds, DTEC is benefitting from forecasts for increases in tech spending across a variety of segments.
“Following a dearth in capital spending, there are signs that investment in cloud and networking equipment is picking up, which could persist if the economic expansion continues. Also, the ongoing rollout of 5G wireless infrastructure is likely to accelerate—increasing demand for telecommunication components and semiconductors,” adds Schwab.
Cloud computing is one of themes represented in DTEC, and that intersects with other sectors, including big data, cybersecurity, and healthcare innovation.
The ongoing 5G rollout, the emergence of fintech (another theme represented in DTEC), and strong sector balance sheets are among the catalysts for tech stocks.
“Generally strong balance sheets and earnings growth potential with low funding costs and financial services technology and surging online retail sales are supporting cloud computing infrastructure and software,” notes Schwab.
DTEC is up almost 28% over the past year and resides just 5.56% below its 52-week high (as of August 19).
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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.