Late last week, we covered how potential “zombie” industries permeate traditional market-cap-weighted indexes. The goal was to avoid or minimize exposure to companies that have been significantly damaged by the shift in business activity due to the crisis. This week we take a more proactive approach in looking for ETFs embodying trends that have been accelerated by the #WFH economy.
The Acceleration of Mega Trends
Recently, we have all seen massive changes in how we interact, consume, transact and communicate. The most obvious reminder comes from the shift in tone and appearance of 24-hour news channels. They all look and sound more genuine, and they all seem to have bookshelves.
Despite the apparent trend, bookshelves are not currently investable, and no ETFs focused on this niche industry have been filed. That said, many of the companies providing these methods of communication, like Zoom (ZM) and Citrix (CTXS), are public equities. Below is a chart of the ETFs with the largest exposure to Zoom:
The Obvious Next Question
The insinuations for index investing go beyond just avoiding as many “zombies” as possible. Passive investors should not accept 5% or higher exposure to zombie companies in their ETF investments. This crisis requires that investors employ a more active or thematic approach to investing.
During our most recent “Get Tanked Thursday” Zoom happy hour, organized by our ETF Think Tank contributors, we continued the conversation on whether the “work from home” trends were in response to the virus, or if they were already happening, and simply accelerated. For example, Square (SQ) has been innovating “contactless” payments for the past few years, but the need for social distancing has massively increased adoption of these techniques.
When we look for other growth trends in technology, health care and innovation, it is clear that investors who have avoided “zombies” have been rewarded. The chart below shows the US equity ETFs with positive performance as of 4-17-20.
Returns as of April 17, 2020. Index performance is for informational purposes only and does not represent any ETF. Indexes are unmanaged and one cannot invest directly in an index. Past performance is NOT indicative of future results, which can vary. |
