ETF Strategies to Tap Into Evolving Sectors

ETF investors who are interested in the potential growth opportunities in the century ahead should consider an investment strategy that will stay ahead of the curve.

“Investors can employ sectors to potentially capture shifts in fundamentals, business cycles and harness thematic trends, as sectors are closely aligned to specific economic variables,” Matthew Bartolini, Head of SPDR Americas Research for State Street Global Advisors, said on the recent webcast, The New Economy is Trending Towards Innovation.

However, Bartolini explained that the definition of sector investing is quickly evolving as the economy witnesses rapid changes brought on by innovative technologies disrupting society. The traditional GICS sector breakdown can effectively group companies impacted by similar macroeconomic changes, but the categorization may not properly identify future trends in a rapidly evolving marketplace. Consequently, investors will require a different and forward looking approach to capture the structural changes underway.

Bartolini argued that we are entering the “Fourth Industrial Revolution”, which presents huge opportunities to improve all our lives, and investors will have to adapt their portfolios accordingly to tap into this growth opportunity.

For example, investors who are considering future drivers of the economy that may be overlooked by traditional methodologies should consider the nascent industries associated with themes like artificial intelligence, hyperconnectivity, exponential processing power, robotics, automation and democratized infrastructure.

“We are now at the dawn of a new revolution,” John van Moyland, Head of Financial Products at Kensho Technologies, said. “Mutually reinforcing catalysts are driving innovation at an unprecedented rate and breadth, transforming industries and creating new ones.”

Cutting Edge Technology, Innovative Indexing

To help investors better categorize and capture these developing industries, Kensho has incorporate cutting edge technology with an innovative indexing methodology to play companies and the ecosystems supporting them. The Kensho New Economies precisely and comprehensively capture the innovation and industries of the Fourth Industrial Revolution, van Moyland said.

The Kensho New Economies covers 21 subsectors, 11 sectors, and 2 tracking indices. Leveraging Kensho’s methodology, these indices may be better positioned to identify the entire ecosystem sectors propelling the Fourth Industrial Revolution. The indexing methodology includes established pure play firms as well as suppliers, innovators, and service providers for a theme; have companies included in more than one new economy industry, reflecting the reality of complex business models; and have exposure to multiple traditional GICS sectors, underscoring how the Kensho Index may provide deeper reach into the entire ecosystem of a particular theme.