The world is changing at a rapid pace, and technology is becoming increasingly woven into the texture of our daily life. Enter the Goldman Sachs Future Tech Leaders Equity ETF (GTEK), which looks to put investors on the right side of disruptive and innovative technology trends.
Recently, ETF Trends’ managing editor Lara Crigger sat down with Cole Feinberg, head of Americas distribution for Goldman Sachs, to discuss how investors can identify and invest in the innovative tech trends that can shape markets for generations to come.
Lara Crigger: In your view, what qualifies a technology stock as being “innovative” or “disruptive”?
Cole Feinberg: Some of the trends we see as disruptive are e-commerce, electric vehicles, fintech, AI, genomics, clean energy, and so on. I like to think of them as “sectors 2.0.” Historically, tech has been its own sector. But our view is that tech is now permeating every single sector, and you don’t necessarily have to be a company creating the technology, but you definitely need to be one embracing it.
Take genomics as an example. With genomics, if you could actually cure the disease — and that’s what genomics seeks to do, by tapping into the human genome — well, then you don’t really need pharmaceuticals, do you? Because pharmaceuticals treat the disease. If a genomics company cures the disease, there’s no reason for the pharmaceutical company to exist anymore. That’s the disruption.
So if you can get to the heart of the matter — and this is what I think the future tech fund is really doing — you’d see that genomics, AI, robotic surgery — all these things are light years ahead of what we’d say are the traditional subsectors of healthcare. You’re taking the Pfizers and whoever out of the picture altogether, if you can cure the disease that they are treating.
Crigger: So in this view, there are very clear winners and losers. There’s a disrupter and a disrupted. Somebody who will benefit and someone who will be left in the dust. Is this how you approach stock selection? Are you focused on who’s going to win in the future, versus the Pfizer left in the dust?
Feinberg: Yes and no. An important differentiator of GTEK is that it is all-cap [up to a market capitalization of $100 billion]. So we’re looking at large-, mid-, small-cap, even micro-cap in some cases, where relevant. The fund is also all-world, because disruptive companies don’t exclusively exist on the New York Stock Exchange. So we’re casting a wide net to make sure that we’re capturing that theme, rather than just market cap.
That said, I think there’s something complicated about your question. Take clean energy companies. Some of the biggest mega-cap companies — the Exxons, Chevrons, and Shells of the world — are also the ones putting a lot of R&D money into clean energy. So you can’t ignore them.
Crigger: The same could be said about Pfizer.
Feinberg: Exactly. There’s a percentage — and it’s not a tiny percentage — of their R&D dollars at these mega-cap companies going to these trends. In our view, that’s the importance of casting that wide net. We want to make sure we’re giving you the best exposure to that theme. And it might be a mega-cap company who’s evolving their view of the future, or it might be a small-cap company hyper-focused on one exclusive thing. But an important aspect of our due diligence process is that we scour all of the above to give you what we believe is the best and brightest optimization of the portfolio.
Crigger: A lot of asset managers out there have an “innovative tech” or “disruptive tech” fund, whatever terminology you want to use. What sets the Goldman approach apart from all the others?
Feinberg: The fact that GTEK is all-cap and all-world is key. We want to ensure that whether a company is big or small, whether it’s in Taiwan or South Korea or South Africa or Canada, it’s eligible to be included in our net. That’s a really important part of it.
Additionally, as you know, this is a transparent active ETF. That’s important too. It’s managed by experienced investors with a disciplined valuation framework that the fundamental equity team within Goldman Sachs Asset Management has been using for a long time. Then you put that in an ETF wrapper, so you can get greater tax efficiency, transparency, tradability, and a little bit lower cost as well.
Another key line in the sand is that we invest in global tech companies with market capitalizations of $100 billion or less. So we want to do is focus on the up-and-comers. We won’t necessarily hit the sell button the second a company crosses that market cap threshold, but generally speaking, we’d foresee that it would be removed relatively quickly and replaced with another high conviction idea.
One last thing: We have a truly global team behind GTEK, so it’s not just a bunch of folks in Manhattan pulling the strings or viewing things over the world. We have folks located all over the U.S., and in Japan, greater Asia, all over the emerging markets, Europe, etc.
Crigger: So you have boots on the ground in the countries where your up-and-comer companies are located, so you can spot opportunities as they arise.
Feinberg: Yes. With boots on the ground in those actual venues, you can have fundamental equity analysts meet with these companies live, face to face. All-cap, all-world sounds cool, but having actual boots on the ground is a really important part of it.
Crigger: One last question for you: What’s the one tech market risk that nobody is talking about?
Feinberg: Every investment manager and talking head on TV, everybody under the sun, is talking about the pace of the disruption, right? But then that raises the question: If disruption is happening that quickly, then how relevant can what’s happening right now really be?
If you look at a photograph of Fifth Avenue taken in 1900, you’d see a street full of horse-drawn carriages, with one car in sight. If you look at a photograph of the same street taken in 1913, 13 years later, you’d see the opposite: a street full of cars, and only one horse-drawn carriage. That’s an incredible pace of innovation!
What will Fifth Avenue look like in the future? Will we have electric vehicles versus gas powered? How long until we have flying cars? I use that as hyperbole, but it’s a worthwhile mental exercise, because if disruption is happening so fast, then does what’s happening now even matter relative to what will happen in two years or five?
We think what’s happening right now matters, but you really have to have your finger on the pulse of what’s happening and stick with the times. Otherwise, you’re gonna get left behind, even if you’re at the forefront right this second. And that’s why we believe it’s so important to look at a solution like GTEK: The fund offers precisely that exposure to the future’s tech leaders.
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