Growth stocks are rallying off July lows, partially erasing steep losses incurred in the first half of 2022 while potentially giving investors new reasons to revisit some of the category’s exchange traded funds.
Market participants may want to consider putting a fund such as the Goldman Sachs Future Tech Leaders Equity ETF (GTEK) atop their lists for review. GTEK is higher by a tidy 8.33% over the past month, but as experienced investors know, investing to the effects of disruptive growth and innovation are long-term endeavors, and it’s appropriate to view GTEK though that lens.
Still, the near- to medium-term outlook for the investing style GTEK delivers is compelling, including modest spending increases aimed at some of the technologies purveyed by GTEK components.
“While a 1-2% increase in revenues may not sound significant, it is important to keep in mind that this comes on top of the phenomenal increase in growth and spending that we have experienced since the pandemic began,” according to Goldman Sachs Asset Management (GSAM). “One concern of investors is that we may have seen 2022 spending pulled forward into 2021, and that we may now be heading into a period of deceleration. We believe this is a valid concern for some companies, where the acceleration in demand resulting from the pandemic may be unsustainable, but we remain confident in the sustainability of the demand outlook for the companies we own in our portfolios.”
Another point in favor of GTEK — which has been lost in the shuffle this year — is that while disruptive growth stocks are often viewed as beneficiaries of deflation, the asset class possess traits that should be prized in inflationary environments. That’s something to consider because although the July inflation data may show improvement from June, consumer prices are still historically high.
In fact, companies that need technology updates and the like may be able to dial back related spending when inflation is high, but those expenditures can’t be eliminated entirely for fear of competitors pulling ahead. That’s a sign that GTEK has more inflation-fighting potency than meets the eye.
“Inflation often drives businesses to invest in innovative solutions as they look for ways to reduce costs and improve efficiency. Over the long term, innovation is a deflationary force; companies leverage technology to offset increases in wages, commodity prices, and other costs. With inflation expected to remain elevated going forward, we believe companies will increase, not decrease, their spending on technology,” added GSAM.
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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.