There’s a sense that the world may not go back to its old ways of doing business, and that potentially means a change in market leadership and in opportunities going forward. But how so?
That’s the big question without a consensus answer yet.
Some ETFs have already been offering different takes on what it means to invest in the economy, finding economic growth potential in slivers of the market, and offering investors ways to implement different views on what they think will matter most going forward.
Consider these funds:
GIGE is an actively managed ETF that canvasses global equity markets for stocks that stand to gain from the “gig economy.” The issuer, SoFi, defines the gig economy as “companies that embrace, support or otherwise benefit” from an independent, entrepreneurial workforce.
This is a high-growth strategy. Here are some key stats the firm cites in the investment case for GIGE:
- Growing demographic: “Nearly half—47%—of the U.S. adult workforce is either currently working as an independent or has at some point during their career. Over the next five years, that figure is projected to grow to 52%.”
- Growing companies: “The more that people work in and interact with the gig economy, the more gig companies will be created and rapidly grow. While startups may experience volatility, consider their high-growth potential.”
- Growing economic impact: “The gig workforce is adding $1.4 trillion annually to the U.S. economy, an increase of almost 30% since 2017.”
GIGE holds about 60 securities, with top holdings including Square (SQ), a financial/mobile payments company; ecommerce platform Pinduoduo (PDD); Alibaba (BABA); and Fiverr (FVRR), an online marketplace for freelancers. These stocks have delivered solid gains this year throughout the market rut—Square is up more than 58% in 2020; Pinduoduo is up 117%; while Fiverr has rallied 178% so far this year.
The bulk of the portfolio is tied to communications names, followed by technology and consumer staples. The U.S. represents about 58% of the country allocation in this global strategy.
Year to date, GIGE is up 28% at a time when the S&P 500 is down nearly 5%. Since the market staged a bottom on March 23, GIGE has rallied more than 68%, delivering almost twice the gains of the S&P 500 in the same time period. GIGE is part of a broader lineup of SoFi ETFs slicing and dicing next-gen-type opportunities in interesting portfolios.
KOMP is an index-based U.S. equity portfolio that invests in companies that are innovating, disrupting or transforming industries—and the economy—through new technologies such as automation, robotics and artificial intelligence.
This is long-term growth strategy. And it has found a strong following, boasting almost $1 billion in assets under management gathered in less than two years.
Here are some key stats that issuer State Street cites in the investment case for KOMP:
- Growth opportunity: “Advancements in processing power, nanotechnology, artificial intelligence, robotics and automation are driving innovation in the new economy, transforming every facet of our lives and creating exciting growth opportunities. Spending on AI and robotics is expected to grow by 380% and 157% from the end of 2017 to 2021, respectively.”
- New driver: “AI could add $13 trillion to Global GDP by 2030, 1.2% annual productivity growth, exceeding productivity benefits of previous Industrial Revolutions.”
The portfolio is pretty broad, with nearly 400 holdings, organized around 16 thematic subindexes, such as 3D printing, nanotechnology and genetic engineering, with securities being chosen by artificial intelligence. Top holdings include Garmin (GRMN), STMicroelectronics (STM), Twilio (TWLO), Alphabet (GOOGL) and Microsoft (MSFT).
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
Year to date, KOMP has outperformed the S&P 500, but in a much more muted way *by design) than high growth strategies.
Charts courtesy of StockCharts.com
FMIL is from a new breed of actively managed ETFs known as semitransparent portfolios. (FMIL only discloses holdings once a month, unlike traditional ETFs that disclose holdings on a daily basis.) The fund launched earlier this month.
This global total market strategy looks at fundamentals to capture companies that are in the forefront of or are big beneficiaries of long-term changes in the market. The portfolio can invest in growth stocks, value names or a blend of both.
Here are some key statements from the issuer on FMIL’s investment case:
- FMIL is busy: “Identifying early signs of long-term changes in the marketplace and focusing on those companies that may benefit from opportunities created by these changes by examining technological advances, product innovation, economic plans, demographics, social attitudes, and other factors, which can lead to investments in small and medium-sized companies.”
- Managers are: “Using fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, to select investments.”
It’s too soon to tell whether this new strategy in a new wrapper will deliver on its design if capturing the winners of a new era, but FMIL is yet another example of ETF issuers looking ahead, trying to capture the next-gen of things for an economy that’s constantly changing.
The ETFs highlighted here are far from a comprehensive list of funds reframing what investing in the economy looks like.
For instance, the ARK Innovation ETF (ARKK) is another great example of a fund that dives into the “what’s next” segment; Goldman Sachs has an interesting lineup of “motif”-centered, future-looking portfolios that includes funds like the Goldman Sachs Manufacturing Revolution ETF (GMAN); and the Global X Conscious Companies ETF (KRMA) offers a look to future leaders through the environmental/social/governance lens with the premise that leadership will belong to those doing business responsibly.
The list of strategies for an evolving “new economy” keeps growing every year.
But GIGE, KOMP and FMIL are good conversation starters, offering a glimpse into the different ways you can think about this space, and the different tools available to you.
Contact Cinthia Murphy at [email protected]