Best future technology ETFs to buy in November 2022
How best to invest in megatrends such as AI, cloud computing and cybersecurity
Wondering how to invest in megatrends, such as cloud computing, artificial intelligence (AI) and cybersecurity? After all, investing in FAANG stocks – Meta (the former Facebook), Amazon, Apple, Netflix and Google (Alphabet) - isn’t the be all and end all in technology. If you’re more interested in the potential returns from future technology, such as machine learning, than the metaverse or online streaming, then there are ways to invest.
Institutional investors say structural drivers for these investment themes are lower development costs, the rising costs of human labour – and the likely saving from the use of artificial intelligence -and evolving technology.
Indeed, the AI market was thought to be worth $27.2 billion in 2019, and is forecast to grow almost tenfold to $266.9 billion by 2027, according to Fortune Business Insights. Meanwhile, the global market for cyber security was valued at $150.37 billion in 2021, according to Mordor Intelligence, and it is expected to more than double to $317.02 billion by 2027.
Exchange traded funds can be a good way to access these investment themes. Doing so helps you spread risk by investing in a basket of many companies, instead of buying individual shares, and certain ETFs can be lower cost to invest in too.
It’s worth remembering, however, that buying US ETFs can prove to be more expensive than London Stock Exchange listed funds.
What’s more, many of these funds also invest in small emerging market companies. Shares in these smaller firms can be far more volatile than those of more established firms in developed markets, such as the US and Europe.
However, investors who feel comfortable with the risks involved can take a look at our funds selections below.
L&G Cyber Security UCITS ETF
The L&G Cyber Security UCITS ETF takes as its benchmark the ISE Cyber Security UCITS Index, seeking to replicate its performance. The index invests in 45 cyber security stocks and the fund’s top ten holdings include US online authentication specialist Ping Identity Holdings - currently being acquired by Thoma Bravo - cloud network Cloud Flare, identity management firm Cyberark, networking giant Cisco Systems, cyber security provider Palo Alto Network and Trend Micro, which specialises in enterprise data security. The top ten stocks account for 43.3% of the fund’s total holdings.
Geographically, the ETF is 70.6% invested in the US, with 11.3% in Israel, 6.1% in the UK and 5.6% in Japan. It’s also 94.6% invested in information technology, with 3.6% in communication services and 1.8% in industrials.
The fund has delivered a return of 63.47% over five years and 18.3% over three years. However, over one year it is down by 27.4% due to lack of investor appetite for technology stocks.
It’s worth bearing in mind that the fund is rated by L&G as a ‘6’ out of 7 in its risk profile, with 1 being the lowest risk and 7 the highest. The ongoing charge is 0.69%.
Wisdom Tree Artificial Intelligence UCITS ETF
Wisdom Tree’s Artificial Intelligence UCITS ETF tracks the holdings and performance of the NASDAQ CTA Artificial Intelligence Index.
Run by Irish Life Investment Managers, the fund’s top ten holdings include Pros Holdings, a Texas-based artificial intelligence firm whose software enhances shopping transactions, Cadence Design Systems, a leader in electronic systems design, cyber security provider SentinelOne Inc and Workday, which provides cloud-based human resources software.
The bulk of the fund (91%) is invested in the information technology sector, with 2.43% in consumer discretionary and 2.37% in financials, while geographically, it is 61% allocated in the US, 13.4% in Taiwan and 4.9% in Japan.
The fund is ISA eligible and the total expense ratio is 0.4%. Admittedly, the performance over the past year has been unimpressive – unsurprisingly, given that the tech sector has been hard hit in this year’s market volatility and lack of investor appetite for risk. Over one year, the fund has lost 37% of its value and over the year to date, 43.6%. However, over three years it has delivered a more respectable return of 9.06%.
iShares Automation and Robotics UCITS ETF
Run by Black Rock, the iShares Automation and Robotics UCTICS ETF, which launched in 2016, seeks to replicate the performance of the STOXX Global Automation and Robotics Index. The index is made up of developed and emerging market companies which are delivering significant sales from industries associated with the development of automatic and robotic technology. It also excludes companies that do not hit certain ESG (environmental, social and governance) criteria, such as those involved in developing weapons, nuclear power and tobacco.
Its top ten holdings include Snowflake, a Montana-based cloud computing and storage firm, cloud-based software engineering company Epam Systems, smart manufacturing provider Rockwell Automation, Workday, electronic instrument maker Ametek and British accountancy software firm Sage Group. The ETF is ISA and SIPP (self-invested personal pension) eligible and the total expense ratio is 0.4%.
As with the Wisdom Tree fund above, the performance of the iShares ETF has been variable, however. Over five years it has delivered a cumulative return of 22% and 11.5% over three years. Nevertheless, over one year it is down 35.6%.
It’s worth bearing in mind that investing in megatrends stocks can be high risk and there is no guarantee that the technology and companies will go on to be successful. Only invest money you can afford to lose.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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