Growing up, I was regularly told not to sit too close to the TV as it would damage my vision, but now virtual reality means its acceptable to strap a phone two inches away from your eyes. I also remember watching films about how robots would replace humans in everyday jobs, developing a mind of their own and now a robot completed a surgical operation on a grape.
The point I am trying to make here is how quickly technology has advanced in such a short period of time, so is this the prime time to invest in the industry or a time to be wary?
This year has seen some unique technology ETFs come to market including the Invesco Elwood Global Blockchain ETF (BCHN) and the iShares Electric Vehicles and Driving Technology ETF (ECAR). Since their inception, BCHN and ECAR have seen positive returns in their net asset values, rising 6.0% and 1.3%, respectively.
Communication technology is also advancing as we are now transitioning in to 5G, the fifth generation of mobile communication. As a result, Defiance ETF and Bluestar Indexes partnered to launch the Defiance 5G Next Gen Connectivity ETF (FIVG) in the US. FIVG is comprised of companies expanding or have already expanded in to the next generation. The ETF has seen its NAV increase 3% since its inception at the beginning of March.
While there remains a high level of interest from investors in the technology space, Steven Schoenfeld, founder of Bluestar Indexes, remains “cautious” having witnessed tech bubbles come crashing down before.
Schoenfeld says Bluestar, an index provider primarily for the US and Israel markets, is regularly speaking with clients regarding new technologies to expand in to. But to avoid another bubble or repeat of the dip seen in the equity market in Q4 2018, Bluestar is diversifying its product set and concepts for developed and emerging market equities as well as speaking with institutions about broader benchmark issues.
The SPDR MSCI World Technology ETF (WTEC) has only just recovered from its crash during Q4 2018, when its NAV dropped 22.4% in three months (see below).
Source: Bloomberg
For the future of technology, Schoenfeld believes there will be a development in thematic ETFs.
Schoenfeld explains: “Thematic has become almost a synonym for tech when it does not have to be. We have been working with potential issuers as well as thought leaders about the future.”
Within thematic technology, there are overlaps and gaps between definitions and which companies should be included. Looking at FIVG as an example, it includes the term “communication” in its benchmark. This definition differs widely from the S&P Communication Sector Index and has led to confusion within the industry. As a result, Bluestar will be carrying out research to define these gaps to offer products for ETF issuers.
There are new and unpredictable technology advances appearing so it is hard to determine where within technology ETF issuers will move in to next. Schoenfeld concluded by saying: “The innovations never cease and we are very excited about it.”
