The Tech Sector is Not All the Same: What You Should Know Right Now

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Investors turning to “tech” in search of growth may be surprised when they “look under the hood.” Many high growth tech-enabled companies are not in traditional tech indexes. As a result, “old tech” indexes lack the growth offered by “new tech.” 

Innovative ETFs like the O’Shares Global Internet Giants (OGIG) from O’Shares are helping to bring investors to the frontiers of the tech industry and digital innovation. Investors can see OGIG standardized performance here.

As growth companies mature, it is not atypical for their sales growth to slow. The global tech industry is still often considered the primary hub of innovation, but will the current players still be achieving consistent value creation for investors? Additionally, while incumbent tech giants may well still be great bets, this does not necessarily mean they are the best. New tech is perhaps best qualified by the fact that they are some of the fastest-growing companies in sales - ultimately one of the most important metrics in business.

Sales Growth and Value Creation

An important result is shown when comparing the results from traditionally popular, blue-chip technology indexes and more advanced innovation-oriented indexes like the OGIG index ETF from O’Shares. With a 110% portfolio return in the past year, OGIG has soundly outperformed standard indexes like the Nasdaq 100 (68.95%), and the Technology Select Sector Index (56.9%). According to O’Shares, part of the key to that performance is focusing on a dynamic approach to investing in companies that are exhibiting real innovation and revenue growth. OGIG is highly differentiated from the Nasdaq 100 and Technology Select Sector Index, with only 8% overlap with the former, and 25% with the latter.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns beyond 1 year are annualized.  For the most recent month end performance visit oshares.com.  

Chairman of O’Shares, and businessman of Shark Tank fame, Kevin O’Leary describes the companies in the index as powering “America 2.0”, saying, “they provide e-commerce infrastructure, cloud services, data services, digital entertainment and more. These companies deliver powerful business efficiencies and growth.” Sales growth is perhaps one of the most important factors in the new tech sphere, and the industry does not seem to be showing signs of slowing down. Digital advertising is on track toward surpassing all forms of traditional advertising (forecasted to surpass 70% of the total global ad spend), penetration rates for internet and smartphone use are still growing, and half of the entire world population is now on some sort of social media. 

While the technology industry continues to grow and change, investors may want to stay highly informed regarding the companies and approaches to capitalizing on value growth involved in more traditional bullish avenues. Following the crowd of old-guard giants and indexes is one avenue for investing in the world of tech, but new players and market makers are showing opportunities for rapid and significant growth in an already hotly contested industry. Additionally, as tech prices fluctuate into 2021, now may be a great time to get into the most innovative new tech companies.

As the technology industry evolves and matures, investors may seek access to the accelerating growth in key sub-sectors and companies leading digital innovation.  Following the crowd of old-guard giants and indexes is one avenue for investing in the world of tech, but new tech may offer investors the opportunity to invest in the internet giants of the future. Additionally, recent volatility for tech stocks may present an attractive entry point for investors.

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Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. The Funds may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. A Fund's emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund's purchase of such a company's securities. Returns on investments in foreign securities could be more volatile than, or trail the returns on, investments in U.S. securities. Exposures to foreign securities entail special risks, including political, diplomatic, economic, foreign market and trading risks. In addition, a Fund's investments in securities denominated in other currencies could decline due to changes in local currency relative to the value of the U.S. dollar, which may affect the Fund's returns. See the prospectus for specific risks regarding the Funds.

Companies involved with Internet technology and e-commerce are exposed to risks associated with rapid advances in technology, obsolescence of current products and services, the finite life of patents and the constant threat of global competition and substitutes.

O’Shares ETF Investments Funds are distributed by Foreside Fund Services, LLC. Foreside Fund Services, LLC is not affiliated with O’Shares ETF Investments or any of its affiliates.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.