Exchange traded fund investors can explore some of the best performing sub-sectors of tech and how they are contributing to a thriving work-from-home environment.
In the recent webcast, Thematic Tech in the New Normal, Phil Mackintosh, Chief Economist, Nasdaq, outlined the current market environment that has been profoundly affected by the coronavirus pandemic and how the economy and consumers have reacted to this new normal. The Covid-19 outbreak has exhibited an uneven impact on various industries, with traditional consumer discretionary goods and services among the heaviest hit areas.
Meanwhile, Mackintosh highlighted the outperformance in the technology-heavy Nasdaq-100 Index, with the Invesco QQQ Trust (NASDAQ: QQQ) returning about 25% this year while the S&P 500 remained relatively flat.
Driving this outperformance in the tech segment, several so-called New Economy stocks have led the charge. Efram Slen, Head of Research, Global Indexes, Nasdaq, highlighted the Nasdaq-100’s leadership in including technology and rising thematic plays, such as artificial intelligence, robotics, cloud computing, internet, disruptive tech, semiconductors, biotechnology, future mobility and more.
Looking at the biotech space, Mark Marex, Research & Development Specialist, Nasdaq Global Information Services, underscored the opportunities in investing in next-generation healthcare innovators. For example, while a vaccine has been the main focus in the coronavirus outbreak, areas like identification, diagnosis, treatment, and epidemiology have been equally important. In the age of Covid-19, we are witnessing the importance of tech-driven research and development in areas like biomolecules, biosystems, bio-machine interface, and biocomputing.
The iShares Nasdaq Biotechnology ETF (IBB) has helped investors capture this increased focus on the biotech segment. IBB has outperformed the broader market, rising 13.5% year-to-date. The theme has also resonated with investors this year, attracting $1.3 billion in net inflows, according to ETFdb data.
Ben Jones, Research & Development Specialist, Nasdaq Global Information Services, pointed to the rise of cybersecurity in the digital age as a way to secure our future from cyber threats and vulnerabilities.
For instance, as American biotechnology and pharmaceutical companies scramble to produce a viable Covid-19 vaccine, we are hearing about foreign agents trying to steal virus vaccine data. The FBI’s Internet Crime Complaint Center received between 3,000 to 4,000 cybersecurity complaints daily as of April 2020, compared to the historical average of 1,000. From February and March 2020, UK cyber-attacks jumped 37% month-over-month amid the coronavirus pandemic.
Given our increasing reliance on digital tools in this new age of communications, the cybersecurity industry may continue to capitalize on the increased demand to thwart potential online security threats. Jones projected that the size of the Cybersecurity industry is expected to reach $208.28 billion by 2023, compared to $149.46 billion in 2019.
The First Trust NASDAQ CEA Cybersecurity ETF (NasdaqGM: CIBR) has benefited from the shift to working at home as more organizations see the benefit of increasing investments in cybersecurity solutions. CIBR tries to reflect the performance of the Nasdaq CTA Cybersecurity Index, which is designed to track the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. It includes companies primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices to protect the integrity of data and network operations.
Lastly, Gaurav Pendse, Product Development Specialist, Nasdaq Global Information Services, underscored the investment opportunity in cloud computing, which should benefit from the increased shift toward remote work. For instance, Flexera’s 2020 State of the Cloud Report showed that 59% of enterprises expect their cloud usage will be slightly or significantly higher than planned this year, and a Gartner survey of 300+ CFOs: revealed 74% of companies plan to shift to more remote work post-Covid-19 permanently.
The First Trust ISE Cloud Computing Index Fund (NasdaqGM: SKYY), which tracks the ISE Cloud Computing Index, could help investors capture this growth. The ETF provides exposure to Infrastructure-as-a-Service, Platform-as-a-Service, and Software-as-a-Service companies.
Specifically, Infrastructure-as-a-Service companies provide the computing infrastructure, delivered over the internet, that enables other firms to build services more efficiently. It helps scale computing demand and avoid the high expenses and complexity of buying and managing infrastructure. About 23% of companies in the Index provide some sort of infrastructure-related services.
Platform-as-a-Service companies provide the development and deployment tools in the cloud, enabling firms to develop cloud-based applications. They also support the web application lifecycle of hosted applications. About 39% of companies in the Index provide some sort of platform-related services.
Lastly, Software-as-a-Service companies provide hosted applications over the internet, leveraging the infrastructure and platforms that other firms have built. About 86% of companies in the Index give some sort of software-related services.
Financial advisors who are interested in learning more about the technology segment can watch the webcast here on demand.