GINN's Got the Goods of Quality Disruptive Companies | ETF Trends

The S&P 500 Technology Index didn’t do much of anything in the third quarter, but that doesn’t mean that investors should gloss over exchange traded funds such as the Goldman Sachs Innovate Equity ETF (GINN).

Actually, now could be the ideal time to consider GINN as a play on potential fourth-quarter upside by high-quality disruptive growth names. GINN, which follows the Solactive Innovative Global Equity Index, extols the virtues of innovative companies, but does so in a fashion that’s approachable to a broad swath of investors.

Said another way, while some rival funds are full of volatile smaller stocks, GINN leans more toward larger, mature yet disruptive companies that are still providing leverage to exciting investment concepts.

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“The equity of companies that are on the ‘right side’ of megatrends, especially in the technology and healthcare sectors, have historically been the greatest beneficiaries of high-growth and low-rate environments,” according to BlackRock research. “And there has arguably never been a better environment for book value accretion, and hence return, for these kinds of companies.”

The technology and healthcare sectors combine for 52.3% of GINN’s roster, according to issuer data. Adding to the allure of GINN is that many of its components qualify as high return on equity (ROE) companies. Think Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and others.

ROE is a quality trait, indicating that GINN is all the more relevant at a time when the quality factor is coming back into focus and higher ROE names are delivering upside.

Additionally, companies in the strong ROE camp are typically focused on research and development and have tidy cash stockpiles and low debt burdens — prime hallmarks of quality.

“Such companies have come to dominate the market capitalization leaderboard in the S&P 500 over the last 20 years. That trend is likely to continue, as technology-enabled creative destruction continues to keep opportunities open for new companies to disrupt old ones, also resulting in exciting private and venture investments on the horizon,” adds BlackRock.

As BlackRock notes, four sectors (in order, technology, consumer discretionary, consumer staples and healthcare) generate ROE in excess of the S&P 500. Tech, healthcare, and consumer cyclicals combine for about 60% of GINN’s roster, confirming that the fund is a potentially appealing destination for investors looking to marry quality traits and disruptive growth opportunities under a single umbrella.

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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.