After scuffling through much of the first half of 2021, the ALPS Disruptive Technologies ETF (DTEC) is higher by almost 6% over the past month.
That rally, nascent as it may be, could be a launching pad for the exchange traded fund because some analysts are bullish on the second-half prospects for some of the disruptive themes represented in the ALPS fund.
DTEC, which turns four years old in December, provides exposure to following disruptive growth segments: 3D Printing, clean energy/smart grid, cloud computing, cybersecurity, data and analytics, fintech, healthcare innovation, internet of things (IoT), mobile payments, and robotics/artificial intelligence.
“Across most of tech, we still see robust fundamental tailwinds supporting future growth in areas such as cloud computing, 5G, and the ‘Internet of Things.’ For most stocks, we characterize the pullback as healthy and still see some stocks with moderately attractive margins of safety for investors, mostly in large-cap software,” writes Morningstar analyst Bryan Colello.
DTEC's Pragmatic Approach
All of the themes represented in the fund offer investors the possibility of strong long-term growth. However, these industries don’t always perform in lockstep with one another. Some can be outright volatile.
Those points underscore the advantages of DTEC’s equal-weight treatment of industries. Industry weights in the fund range from weights of 9.24% to 10.44%. DTEC isn’t excessively vulnerable if one segment declines. Likewise, the fund’s depth ensures can participate in upside from multiple areas without having to own several ETFs to accomplish that objective.
Likewise, none of DTEC’s individual components exceed weights of 1.15% – a positive when considering many traditional tech funds introduce significant single-stock risk. Among the DTEC components that could contribute to second-half upside for the fund are Dow component Salesforce.com (NYSE: CRM) and VMWare (NYSE: VMW).
“In our view, Salesforce will benefit further from natural cross-selling among its clouds, upselling more robust features within product lines, pricing actions, international growth, and continued acquisitions, such as the recent Tableau deal and the pending Slack deal,” said Colello.
As for VMWare, the analyst says the company has “an enviable position” in multiple cloud platforms. Its security platform also positions it for more cross-selling and up-selling.
For more on cornerstone strategies, visit our ETF Building Blocks Channel.