next-gen-investing

Guide to Big Tech or Nextgen Investing

In the millennial, big tech is in!

But firstly, let us understand what Big Tech is. Big techs are major technology companies with unparalleled influence in technology and our lives indirectly.

These are the most prolific and burgeoning companies of our times. Often big names like FAANG, i.e., Facebook, Apple, Amazon, Netflix, and Google, are considered members of this elite club.

These Big Tech companies are so vast in their operations that no other player is comparable. Most of us consume products of these FAANG companies in one way or another, like using a platform for ordering something from amazon or having a social media account, etc.

If we look at the cumulative market cap of FAANG stocks is $7.07 trillion, which is double the size of India’s market cap (which stood at $3.46 trillion). Furthermore, when we look at the following five players in the US, the market cap of (Microsoft, Tesla, Taiwan Semiconductor, NVIDIA, and Visa) stands at $4.83 trillion depicting tremendous difference and room for growth when compared to the top five players.

While these numbers are enormous, these companies have been growing sustainably and are commanding their sweet share in the market.

For example – Facebook is possibly the most prominent social networking platform (including WhatsApp, Facebook, and Instagram). Similarly, Google is the undisputed leader when it comes to search engines.

The following charts depict the growth story of these companies
Earning Trajectory of FAANG Stocks

Source: EduFund Research Team
Note: Period understudy is between Mar’19-Sep’21

The revenues of these companies often surpass the value of the GDP of several countries. For example, the revenue of Amazon and Apple both surpassed the value of the GDP of Pakistan (296 $ billion) by almost 90 $ billion and 69 $ billion, respectively!

Source: EduFund Research Team

The GDP comparison shows the efficiency of these companies are in their business operations and how well they’ll augur in the future. The most significant plus point for these companies is that they run their business on the new oil of the industry – data

What is the conclusion? – these companies are sure to grow more in the future. Imagine investing in these companies and how your wealth would have increased by now?

But there’s no need to worry because we live in a technology-driven world. In the words of Joseph Krutch, ‘Technology made large populations possible; large populations now make technology indispensable.’

As the name suggests, various firms are investing heavily in new generation technologies like –

New Generation Technologies

Let’s briefly go through these next-gen technologies. Internet, this is just unmissable! We all know how rapidly internet technology is progressing. 5G services are already up and running commercially in over 64 countries worldwide.

Robotics and AI is the new talking point of the industry

Automation and AI have helped solve several problems industries face and will grow even in the future. Self-driving cars as a field have tremendous scope and lot.

The future of automobile manufacturing will get entirely automated. In 2020, the 3D printing industry was worth 13.7 $ billion with an expected growth towards 63.46 $ billion by 2026, which means a CAGR of 25% approx. All these industry projections show how resilient the future is – various chipsets power today’s world.

Almost all devices have a semiconductor chip installed, from a simple LED bulb to a complex supercomputer. Thus, this industry is sure to flourish in the future. Unified Payments Interface (UPI) is living proof of how strong the fintech industry can grow. Fintech unapologetically has to be a next-gen industry.

We don’t want to miss the bus this time. Several ETFs invest in such next tech. Here are a few theme-based US ETF recommendations from us:

Ticker NameSegmentName1 Year Return3 Year Return5 Year Return
DRIVEquity: Global MobilityGlobal X Autonomous & Electric Vehicles ETF-0.02%113.23%N/A
PRNTEquity: Global Robotics & AI3D Printing ETF-29.95%31.60%25.64%
SNSREquity: Global InternetGlobal X Internet of Things ETF1.54%87.85%102.81%
ARKFEquity: Global FinTechARK Fintech Innovation ETF-44.17%N/AN/A
FIVGEquity: Global 5GDefiance Next Gen Connectivity ETF2.11%N/AN/A
IGFEquity: Global InfrastructureiShares Global Infrastructure ETF11.11%19.57%34.25%
CIBREquity: Global CybersecurityFirst Trust NASDAQ Cybersecurity ETF0.67%80.84%122.84%

Investing in all the themes under one Roof

Now since we have seen several theme-based ETFs, let’s look at some ETFs that takes care of all! The more diversity in the portfolio, the lower is the risk involved. Below are the five ETFs that invest majorly in tech companies; these are not theme-based.

The portfolio diversification of these ETFs is oriented towards tech companies

Ticker NameNameTotal Assets ($ B)1 Year Return3 Year Return5 Year Return3 Year Net Flows ($ B)
QQQInvesco QQQ Trust180.367.30%110.74%182.08%36.55
VUGVanguard Growth ETF77.387.43%93.76%145.59%7.84
IWFiShares Russell 1000 Growth ETF67.238.43%91.87%152.41%-7.70
IVWiShares S&P 500 Growth ETF34.3612.54%87.50%142.75%-3.88
TQQQProShares UltraPro QQQ19.178.46%361.00%721.84%18.02

Source: EduFund Research Team
Note: Data as of 30th Jan’22.

Above listed funds have the highest Assets Under Management and provide investors with constant returns. Thus, these funds are ideal for investors seeking long-term capital growth.

What’s in it for Indian investors?

There are two ways in which Indian investors can reap benefits from their investments in the US markets:

  • From the returns that these ETFs have generated. 
  • From the rupee depreciation, which has been depreciating at 4% approx. Annually for the past ten years.

So, if the fund gives a 20% return and the rupee depreciates by 4%, the total gain will be 24% for the Indian investor.

The below chart explains how the rupee is depreciating over the period.

Rupee depreciating over the period

Source: EduFund Research Team.
Note: The period under study is between Feb’14 to Feb’22

Conclusion

The big tech companies or tech-based ETFs has generated stable and healthy returns over the period. So, as an investor, you should consider adding US ETF to your portfolio.

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