After languishing this year, disruptive growth stocks could regain momentum in 2022, making exchange traded funds like the Goldman Sachs Future Tech Leaders Equity ETF (GTEK) relevant considerations in the new year.
GTEK debuted in mid-September. Since then, disruptive growth strategies struggled amid fears of Federal Reserve tightening and, more recently, the emergence of the Omicron variant of the coronavirus. However, recent weakness in disruptive growth could be one of the rare buying opportunities by this investment, perhaps paving the way for GTEK upside in 2022.
Some market observers believe that a slew of macro factors indicate that the outlook for disruptive technology is bright over the long-term.
“In the decade ahead, investors face a world that is experiencing increased technological disruption, aging populations, monetary and fiscal coordination, and de-globalisation, as well as stronger political calls for wealth re-distribution and environmental action,” according to UBS. “The pandemic has accelerated the advancement of many of these themes, creating uncertainty, but also compelling long-term investment opportunities.”
The runway for growth offered by some of the innovative technologies featured in GTEK is staggering, indicating that the fund’s recent malaise could be assigning some value to growth stocks that rarely appear inexpensive.
“For example, the combined revenues of the “ABC technologies”, artificial intelligence, big data, and cybersecurity, are expected to grow from USD 384 billion in 2020 to USD 620 billion in 2025,” adds UBS.
Vital to the GTEK thesis is the fact that its holdings, upon addition to the fund, have market values of less than $100 billion. While there are no guarantees, the GTEK methodology offers investors a reasonable chance of finding the next storied mega-cap companies before they gain mega-cap status. At the very least, GTEK removes the stock-picking burden while offering investors the benefits of active management.
“Capturing growth in these areas will require investors to look beyond just mega-cap tech stocks and focus on mid-cap names that could prove to be ‘the next big thing’, as well as using private equity to gain exposure to early-stage growth companies,” notes UBS.
GTEK holds 67 stocks, and while that’s a small lineup relative to some index-based technology ETFs, concentrated portfolios, particularly when actively managed, have track records of delivering for investors in the disruptive growth space. High conviction is a valid investment strategy and it has merit with not-yet-mega-cap disruptive growth fare.
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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.