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My grandchildren find it hard to believe I grew up in a home without a TV set.
I suspect their own grandchildren will find it equally difficult to understand why there were no robots in the house when their grandparents were young. “And gee, granddad, did you really have to drive the car yourself?” they may ask.
Our lives are changing very quickly, thanks to disruptive technology. Investopedia defines that as “an innovation that significantly alters the way that consumers, industries, or businesses operate. A disruptive technology sweeps away the systems or habits it replaces because it has attributes that are recognizably superior”.
It's not a new concept. The invention of the wheel was probably the first example of disruptive technology in human history. The printing press, the steam engine, the telephone, the electric light bulb, the automobile, the airplane, radio, and television all qualify.
In recent years, the computer, tablets, smartphones, and the Internet have changed our lives dramatically in less than a generation.
Investors who were able to identify and invest in successful disruptive technology companies have become very wealthy. Amazon.com, Alphabet (Google), Netflix, Tesla, and Facebook are just a few of the names that come to mind.
And we’re just getting started.
“Industries such as video-gaming, cloud computing, cyber security, and automotive innovation are being transformed by disruptive technology,” says Elliot Johnson, CIO/COO of Evolve ETFs.
“This disruption is resulting in massive user growth, new business models, and is changing the way we work and play. These are long term trends that have accelerated due to the pandemic lockdown, and we see no signs this will slow down in the years ahead.”
Evolve is a company you may not have heard of. They’ve only been around since 2017, but they’re making a name for themselves with some high-performance funds that are tightly focused on disruptive technology.
The flagship is the Evolve Innovation Index Fund (TSX: EDGE), which had posted a two-year average annual compound rate of return of just over 44% as of Jan. 1.
It focuses on seven sectors that Evolve’s managers believe will be the leaders in the development of new disruptive technology in the next few years: cyber security; cars (electric and driverless); genomics; 5G; social media; robotics and automation; and cloud computing.
Some of the names in the portfolio are well-known: Sony, Samsung, Alphabet, Qualcomm, Twitter, T-Mobile, and Intuit are a few. Others are little known but are on the leading edge of changes in their respective industries.
One example is South Korea’s Celltrion Healthcare, a biotech company that is in the process of conducting clinical trials on a drug to treat patients with mild to moderate symptoms of Covid-19. Another is Japan’s FANUC Corp., which specializes in robotics.
“We feel investors are overweight in large-cap technology,” says Mr. Johnson. “Small-cap tech firms have more growth potential.”
So far, Evolve has this sector pretty much to itself in Canada. But there are several disruptive technology ETFs in the U.S. that Canadians can purchase through a broker. One of the best performers is the Ark Innovation ETF (NYSE: ARKK), which gained 143% in 2020. It’s run by Catherine Wood, who in a few years has gained a reputation as one of the top experts in the field.
So, what companies should you be watching in 2021? Mr. Johnson has three suggestions. All these stocks are held by Evolve’s funds.
BioNTech SE (NSD: BNTX). This German biotech giant partnered with Pfizer to produce the first Covid vaccine to be approved for use in Canada, the U.S., and the European Community.
Nio Ltd. (NSD: NIO). A leader in developing electronic vehicles in China, Nio is now setting its sights on Europe. Drivers don’t have to spend time charging the battery; just pull into a service centre and they’ll replace it with a fresh one in a few minutes.
Zscaler Inc. (NSD: ZS). This company is a leader in cybersecurity – an issue that has dominated the headlines in recent months, including the massive cyberattack on the U.S. government and hundreds of American businesses that was purportedly carried out by Russia.
What are the risks of investing in disruptive technology? In some ways it reminds me of 1999-2000, when everyone was plowing money into any company with an Internet connection. The bubble burst in the spring of 2000, and many fledging companies did not survive.
Still, the growth opportunities are enticing, even with the big gains we’ve seen so far. I suggest using an ETF for diversification rather than buying individual stocks. And allot only a small percentage of your investable assets. This is an exciting field, with some potential big winners – but there will certainly be failures as well.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. An earlier version of this article originally appeared in The Toronto Star.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
© 2021 by The Fund Library. All rights reserved. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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