As we witness the of new economies fueled by innovative companies disrupting traditional industries, investors can also consider targeted exchange traded fund strategies that can capitalize on the growth opportunities through leveraging advancements in exponential processing power, artificial intelligence, robotics, automation, and more.
In the recent webcast, Investing in the New Economy: Growth Opportunities through Technology Advances, Matthew Bartolini, Head of SPDR Americas Research, State Street Global Advisors, will delve, highlighted the rapid shifts in the way we interact with the world this year, with increased video conferencing, working from home and rising demand for telehealth after the coronavirus outbreak upended the normal economy.
“Societal trends have been upended, with consumer and corporate behavior altered, leading to an increase in interest in how to stay connected,” Bartolini said.
Consequently, as we move on and adapt, “technological innovation will be at the forefront of reshaping our way of life. It will touch every industry and be the catalyst for new ones,” he added.
For example, Bartolini and Ric Edelman, Founder, Edelman Financial Engines, listed out potential opportunities in advanced medicine, telehealth services, remote access capabilities, document storage, videoconferencing, digital payments, interactive home entertainment, new forms of media consumption, cybersecurity and updated infrastructures in what may be described as a tech inflection point.
“Investors are likely to seek out specific exposure tools to capture one or all of these next-generation (NextGen) trends, and those thematic funds are a diverse group of exposures and construction,” Bartolini added.
As a way to help investors capture these new economies, John van Moyland, Managing Director, Global Head of S&P Kensho Indices, S&P Dow Jones Indices, highlighted the S&P Kensho New Economies Composite indices, a comprehensive framework with which to understand and precisely capture exponential innovation and growth. For example, the Intelligent Infrastructure segment captures industries involving smart buildings and smart grids; Smart Transportation covers drones, autonomous vehicles, and advanced transportation systems; and Future Security encompasses space, robotics, cybersecurity, smart borders, wearables, drones, and virtual reality.
“You need to understand which companies are leading the innovation,” van Moyland said. “The current classification schemes, such as GICS, are not particularly well suited to identifying specific areas of innovation: as functional models, they aren’t sufficiently precise.”
The Kensho indexing methodology starts with expert curation, combined with advanced topic modeling, to create a comprehensive model of the target industry. The indices incorporate A.I. selection to identify companies from SEC filings to capture both pure-play names and supporting ecosystems. The companies are then categorized according to their focus on the new economy.
The components are weighted by an algorithmic proxy where a holding is overweight as subsector demonstrates enormous potential and expectations are high; increasing underweight approaching the peak of inflated expectations as visibility is growing rapidly; underweight as the subsector corrects from over-inflated expectations with negative returns and high volatility; and lastly, increasing overweight as the subsector gains equilibrium between market expectation and reality.
“By targeting firms within the sectors driving innovation within the new economy, the result is a high beta, multi-cap, high active share exposure to pursue long-term growth potential,” Bartolini said.
Bartolini highlighted the SPDR Kensho New Economies Composite ETF (NYSEArca: KOMP) as a way to complement a core position with a broad-based exposure focused on companies driving innovation within the Fourth Industrial Revolution. KOMP includes “New Economy” industries, ranging from 3D printing to genetic engineering, which can provide investors access to a comprehensive and diversified set of companies propelling innovation.
Financial advisors who are interested in learning more about investment opportunities in technology advances can watch the webcast here on demand.