TrueMark Investments on Why to Buy Into the Tech Dip | ETF Trends

After the pandemic took hold in 2020, technology greatly expanded thanks to businesses relying on working from home strategies, along with biotech’s importance. A recent dip in tech stocks may cause concern for some. ETF Trends caught up with Michael Loukas, Principal & CEO of TrueMark Investments, who shared his thoughts on investors with a long-term horizon buying into this dip, along with other knowledge focused on the Artificial Intelligence & Deep Learning ETF (LRNZ).

Looking at the current adjusted world, when it comes to the market evolving in regards to tech, Loukas explains, “The global demand for tech will continue to skyrocket. Pandemic-related lockdowns certainly increased the intensity of the spotlight on certain tech segments, but the appetite for these technologies isn’t going to simply vanish as covid restrictions come to an end. We’ve been pounding the table on this for the better part of twelve months. The trends were already in place; the pandemic simply sped up the timeline.  As the world continues to adjust, there is absolutely no question that the “new normal” will include a major uptick in the presence of technology in our daily lives.”

As far as areas or trends related to tech that investors should be looking into, Loukas states, “We’re big believers in the growing role of Artificial Intelligence and Deep Learning in various categories. It’s the focal point of LRNZ. A variety of valid trends have been receiving attention lately, particularly in the areas of communication, robotics, gaming, autonomous transportation, space, etc., and rightfully so. But as investors, we’re focused on the impact of Deep Learning in any of these areas. Deep Learning technologies can represent such a pronounced competitive advantage for tech-based companies that it’s important we stay versatile enough to identify potential category killers in whichever respective technology segment they arise. It’s an approach that dovetails perfectly with our active management philosophy.”

When considering which secular trends will outlive this recent rising rate-induced sector rotation, Loukas makes it clear, “The rate induced sector rotations are often misinterpreted as a complete abandonment of growth stocks as investors turn their attention to dividend and value characteristics. In reality, secular growth trends tend to survive intact once the dust settles. However, these cycles do place a heightened emphasis on rewarding growth stocks with accelerating fundamentals while simultaneously punishing what are simply “story stocks.” I think investors have definitely seen the latter half of that equation prove out recently. Moving forward, there are quite a few secular growth trends that can be found in the categories and sub-sectors of cybersecurity, cloud migration, software-as-a-Service (SaaS), gaming, and biotech.”

What Can We LRNZ?

As noted, tech has been very popular for the work from home environment and in the medical area. When looking at the role LRNZ has played, Loukas explains, “In our opinion, these industries are great examples of trends that were in motion before the pandemic economy. Yet it’s fairly easy to see how they were thrust into the spotlight with the shift to remote work and the ensuing race for a covid vaccine.”

He continues, “At its core, LRNZ believes in the “winner take all” phenomenon in tech, meaning the ETF invests in companies with the potential to be category killers. A massive increase in the use of AI & Deep Learning within companies that focus on technologies related to drug discovery or the irreversible digitalization of the economy, for example, has allowed us to better identify stocks with increasing fundamentals both before AND throughout the pandemic economy, giving us greater insight into the potential category killers in these segments.”

Regarding the weighting for the fund, Loukas states, “LRNZ is unique in that it’s a fairly concentrated portfolio.  It typically holds 20-25 names when fully invested. As we identify tech segments progressing through hyper-growth cycles, the fund will attempt to own a group of 1-3 names that will likely include the potential “winner” of the segment. As that winner emerges, we then consolidate into it and harness the resulting secular growth cycle. That process can take time, making hasty portfolio changes unwise. However, the past twelve months has allowed many category killers to begin distancing themselves from the competition, allowing us to reduce the number of portfolio names in some segments and add new names in others. Biotech and gaming are two sectors that have seen a larger presence in that context.”

Finally, as far as the long-term goals of LRNZ go, Loukas notes, “Simply put, the goal of LRNZ is to identify tech segments that are entering a hyper-growth phase and invest in the segment’s future category killer. More specifically, the fund focuses on companies that possess this potential because they adeptly utilize AI & Deep Learning as a distinct competitive advantage.”

He continues, “Why is this relevant? Because a rather large chunk of market upside performance over the past ten years was delivered by a select group of category killers we commonly refer to as FAANG. We tend to hear a great deal about disruptive technologies these days, but less discussion of what happens after disruption. Disruption gives rise to new tech segments, but which companies will end up becoming the category killer? Seldom does the journey to becoming a household name exist in a vacuum. There will eventually be a few major winners and many more losers in a crowded new tech segment. LRNZ is designed to try and identify those companies best equipped to survive a winner-take-all environment, much like the those that gave rise to the members of FAANG a decade ago.”

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