The usually high-flying technology sector is off to a rough start this year, but investors shouldn’t abandon the group.
Some market observers believe investors don’t need to stress about technology stocks. At least, they don’t if they’re selective and embrace quality names over speculative fare. That goal is reachable with exchange traded funds, including the Goldman Sachs Innovate Equity ETF (GINN).
A primary advantage of GINN is that its tech holdings (the sector accounts for 34.1% of its weight) are not in the “pandemic losers” fray. Rather, they’re highly profitable, cash-generating companies with wide competitive moats.
“Many pandemic winners, like Peloton, Zoom, and Netflix, already gave back most of their post-pandemic rally as investors expect the COVID-related growth tailwinds to fade from here,” according to BlackRock. “Meanwhile, quality, innovative tech companies with stable cashflows and higher profit margins, have fared relatively well.”
Another way of looking at GINN is that the bulk of its tech holdings, including the likes of Apple (NASDAQ:AAPL), Microsoft (NASDAQ:NVDA), and Nvidia (NASDAQ:NVDA), among others, are profitable. That’s meaningful over the near term because markets are signaling disdain for money-losing growth firms.
“We think it is important to winnow the winners and keep exposures to quality tech companies, such as those in the data processing, hardware, and semiconductor industries, while being cautious with high growth companies that are not yet profitable,” adds BlackRock.
GINN does tap into many of the exciting, disruptive themes that are altering the tech landscape. That’s a positive because those themes are still worth accessing, though some are falling out of favor due to the waning pandemic. However, there’s long-term momentum for most, and because GINN’s holdings aren’t heavily pandemic-dependent, the ETF could be a leader when tech stocks rebound.
“Despite the recent selloffs in stay-at-home favorites, COVID-19 has accelerated the adoption for business virtualization and communications software. A McKinsey survey conducted in 2020 suggests that 75% of people who used digital channels for the first time during the pandemic plan on continuing to leverage these digital options going forward,” concludes BlackRock.
GINN is modestly higher over the past week.
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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.