How to invest in new technologies

Technology stocks have been soaring in recent years, but what are the new big themes in the sector, and how can the forward—thinking investor capitalise on them?

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results
New technology

It’s hard to believe that technology was once considered to be a niche investment. Today, tech firms are among the most influential market movers, and household names in their own right. The sheer dominance of tech stocks in the S&P 500 means that any portfolio with US equities exposure will already be substantially invested in the sector — particularly in tech giants such as Apple, Microsoft, or Google parent Alphabet.

Yet the rise of technology is still a relatively recent development. Just two decades ago, in January 1998, Apple shares were trading at just $0.67 a piece, before rising to $23.05 by January 2008. In January 2018, Apple is one of the biggest companies in the world, with a share price of approximately $173.00.

Apple’s success story is well known, and it has inspired countless investors to take a chance on an up—and—coming tech firm, in the hope that they will emulate these returns. Needless to say, this strategy does not always work out.

However, over the past few years, some new technology sub—sectors have begun to emerge, offering a glimpse of the future to forward—thinking investors. Cryptocurrencies, self—driving cars, robotics, and cleantech are just a few of the disruptive new technologies which are making waves in the financial community. Read on to learn about a few of the most interesting new technologies that you can invest in today.

Robotics

What is it?

Robo—technology is not exactly new — after all, our homes are now full of automated vacuum cleaners, ‘smart’ thermostats, pre—programmed coffee—makers, and the ubiquitous ‘Alexa’ virtual assistant. But the most exciting developments in robotics are happening outside the home.

‘Medical’ robots are being trialed in surgeries across the US, while robotic limbs and prosthetics are becoming more realistic, and more affordable. The fields of medicine and science are prime targets for the robotics industry, so it is worth keeping a close eye on any breakthroughs within these areas.

How to invest: There are a few exchange traded funds (ETFs) which specialise in robotics, including the individual savings account (ISA) ready ROBO Global Robotics and Automation GO UCITS ETF, which has returned 23.29% over the past three years. Alternatively, you could target stocks in companies which are on the forefront of robot technology. Tesla, Siemens and Amazon all have their own in—house robotics departments, but there are a number of smaller companies with a stronger focus on robo—technology. NASDAQ—listed Cognex Corp specialises in bionic sight, machine vision and sensors; while the Alternative Investment Market (AIM)—listed Blue Prism manufactures 'software robots' to carry out back—office tasks.  

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Cryptocurrency

What is it?

Bitcoin has been stealing all the headlines over the past year, but it is not the only digital currency. Litecoin, ripple, dash and ethereum have also performed well in recent months, and their combined success has only fueled interest in the burgeoning cryptocurrency marketplace.

However, volatility is a very real concern across the sector, and a lack of regulation has made many would—be investors nervous. The UK, EU, and the US are already attempting to force regulation onto digital currencies, an effort that could either bring cryptocurrency into the mainstream, or stifle its ‘off—grid’ decentralised appeal.

How to invest: The easiest way to invest in cryptocurrency is to simply buy it. There are an abundance of bitcoin brokers and exchanges across the internet, but the risk of fraud is always there. Some financial firms have started to advertise passive cryptocurrency investment strategies, and even futures trading, and the first bitcoin—focused ETFs are already in development.

Cleantech

What is it?

Cleantech represents an alternative to fossil fuels, by focusing on renewable energy solutions such as wind turbines, solar panels, and geo—thermal technology. The Paris Agreement has ensured that every country in the world (with the exception of the US) is committed to reducing its reliance on fossil fuels, and investing in cleantech solutions. This has already proved disruptive to the energy sector. Last year, oil giant BP bought a 43% stake in Europe’s biggest solar developer, with the firm’s chief executive for alternative energy, Dev Sanyal, predicting that solar 'will constitute around 10% of global power in the next 20 years'.

How to invest: There are a multitude of cleantech—focused ETFs available, that can offer instant diversity across the whole market. The PowerShares Cleantech Portfolio has returned 30.26% over the past 12 months by investing in companies such as water—tech pioneers Xylem. Similarly, the First Trust NASDAQ Clean Edge Green Energy Index Fund has returned 31.73% over the past 12 months, thanks to strategic investments in solar power and semiconductor businesses.

Self—driving cars

What are they?

Arguably the most disruptive technology of them all, self—driving vehicles are set to revolutionise transport throughout the world. Self—driving software has already been installed in Tesla’s upcoming Model 3 cars, while major car manufacturers such as Volvo, Renault—Nissan and BMW have pledged to have driverless cars on the road by 2020. In California, self—driving trucks are already moving goods, raising the prospect of automated haulage in the very near future.

How to invest: This is set to become a very competitive sector within a very short space of time, so would—be investors should watch out for issues such as consolidation, and the possibility of smaller companies going bust. As a result, any investment in self—driving technology should prioritise liquidity. Low—fee ETFs allow active investors to re—set their portfolio allocations without being penalised, whilst benefitting from general growth across the sector. In the absence of an ETF dedicated to driverless technology, investors should look at funds which target the car sector and innovation. The First Trust NASDAQ Global Auto Index Fund is weighted towards GM, Toyota, Daimler, Ford and Honda — all of whom are actively developing self—driving cars. Meanwhile, the Industrial Innovation ETF by ARK Invest focuses on the two pioneers of driverless technology — Tesla and NVIDIA.

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