Investors are understandably jittery about the technology sector’s disappointing start to 2022, but it often pays to take a step back and see the forest through the trees.
Patient investors can capitalize on some compelling valuation opportunities today and still impressive long-term fundamentals by considering tech-heavy exchange traded funds, including the Goldman Sachs Innovate Equity ETF (GINN).
GINN is overweight on tech stocks relative to broader benchmarks, such as the S&P 500, but it’s not a dedicated tech ETF, indicating that it can mitigate some of the near-term risk associated with that sector. Still, the Goldman Sachs ETF is more than adequately levered to the possibility that tech and growth stocks will rebound at some point this year.
“The tech companies we rate performed well in the December quarter and generally have bullish outlooks for 2022. Enterprise spending is picking up as companies release pent-up demand and as management teams gain confidence in the macroeconomic picture with the omicron wave waning and strong employment figures,” notes S&P Global Ratings.
The $437.23 million GINN further defrays risk by not allocating more than 2.7% of its weight to any of its 464 holdings, confirming that single stock risk is light in the fund. Even with that, GINN’s broad-based exposure positions the ETF to potentially benefit from a variety of interesting long-term tech trends, including ramping enterprise expenditures and industrial demand.
“Automotive and industrial markets are gobbling up available supplies that have been short in recent quarters, and even after supply eventually increases enough to meet their production needs, orders will remain strong as they rebuild dwindled inventory, helping NXP Semiconductors N.V. and Texas Instruments,” notes S&P.
Moreover, GINN provides exposure to emerging technology themes, such as big data, fintech, healthcare innovation, the next industrial revolution, and new consumer trends. To accomplish those objectives, GINN allocates over 48% of its roster to the healthcare, consumer discretionary, and communication services sectors.
Remembering that credit often leads equity, tech sector credit ratings are likely to trend higher this year, though at a more modest pace relative to 2021.
“Macroeconomic risks–such as inflation, rising borrowing costs, and the pace of recovery from the pandemic–bear monitoring, but we believe tech company ratings will continue to have an upward bias throughout 2022, albeit a more moderate trend compared to 2021,” concludes S&P Global.
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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.