One of the most beleaguered investment concepts entering 2023 was disruptive or innovative tech. Stocks with those labels were punished last year as interest rates rose and as investors eschewed non-profitable companies.
In better news, the long-term outlook for disruptive growth industries remains attractive. Combine that with the possibility that monetary policies will loosen a bit this year and investors will again prioritize growth assets, and it’s possible that exchange traded funds such as the ALPS Disruptive Technologies ETF (DTEC ) could be credible rebound ideas.
DTEC is particularly relevant in this conversation because its underlying index — the Indxx Disruptive Technologies Index — doesn’t isolate a single disruptive tech concept. Rather, the benchmark provides exposure to 10 such concepts, including but not limited to artificial intelligence, cloud computing, fintech, and healthcare innovation.
“Thematic investing is about identifying and capturing structural trends in society and the economy. These global megatrends, such as tackling climate change, addressing inequality or enabling the digital & technological transition, often have end-points in the distant future that require a long-term approach to investing,” noted BNP Paribas.
Owing to the fact that disruptive themes don’t always move in lockstep with each other, DTEC is all the more pertinent to investors seeking diversification because innovative tech industries usually feature their own product cycles. In simple terms, it’s possible that cybersecurity — another industry represented in DTEC — can be in fashion while fintech scuffles.
In fact, it’s integral that companies manufacture avenues for capitalizing on and supporting their own growth cycles. That speaks to the theme-level diversification benefits afforded to investors by DTEC.
“Companies can act on such themes throughout their growth cycle, from being early-stage adopters to established industry leaders joining in. Start-up companies can be disrupters in their industry, while older and established companies can contribute by adapting to change,” added BNP Paribas.
Further supporting the case for DTEC as a long-term investment is the point that many still-young disruptive industries and technologies are likely to prove pivotal in addressing issues including climate change, improving healthcare, enhancing access to basic financial services, and more.
“We believe allocations to thematic strategies can play a crucial role in addressing the world’s long-term challenges,” concluded BNP Paribas. “They often support growth by providing companies with access to capital. In addition, with a longer- term investment horizon, we see greater scope to focus on a smaller number of potentially exceptional companies with the opportunity to generate excellent growth and ultimately superior returns.”
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