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Think technology for your portfolio

Evidence suggests investing in technological and biotechnological funds during market turmoil could gain an investor a better return relative to other traditional celebrated funds.

During this pandemic, a lot of the sectors have performed badly. Investors are willing to play safe but also would like to invest in better performing funds with a good sustainable performance. The question is which asset class will provide you with a good return of investment? Empirical evidence suggests that investing in technological and biotechnological funds during market turmoil and/or pandemic could gain an investor a better return relative to other traditional celebrated funds.

The outbreak of Covid-19 has changed several behaviours across the globe in terms of how we work, shop and socialise with those in our sphere of contact. These unpredicted changes have enhanced an era of digitalisation in most businesses across the globe. Consumer buying patterns have dramatically changed, with a massive spike in online transactions as most shoppers turned to online shopping for their essential basic needs due to economic activity shutdown.

In this new dispensation smeared with provisional economic shutdowns, the technology sector benefited the most over the past few months. Social media (such as Facebook, Instagram, Twitter and Tik Tok) and gaming companies recorded huge traffic to their platforms, which entails increased earnings. Also, the telecoms companies have also enjoyed a surge in data usage as the majority of people were working remotely.

The diversity of technology in our daily lives makes a strong justification for treating it as an important ingredient in an investor’s portfolio. Over the years technology has been instrumental in simplifying human life and economic expansion.

As the world moved towards globalisation, digitalisation of most economies has enabled efficiency, increased competition, and lowered costs due to increased economies of scale. Therefore, the technology sector will continue to see positive growth and thus contribute positively to an investor’s portfolio on a weighted average basis.

The graph below shows the three-year movement of the S&P 500 Information Technology Sector Index

 

Source: Market Watch

  • YTD: 6.88%
  • One-month: 5.40%
  • Three-month: 30.54%
  • One year: 28.30%

Performance as at June 11 2020. Please note that past performance is not indicative of future returns.

Investors are trying to find opportunities in hope that a successful solution to fight back the spread of the virus may lead to good growth in portfolios. A number of pharmaceutical companies are mainly focusing on the making and testing Covid-19 test kits and are expected to play an important role in managing the outbreak and have consequently gained a lot of value.

The Covid-19 pandemic will bring a significant amount of investments and developments into the biotechnology sector. This has changed the behaviour of the medical fields where the focus is on diagnosis, early-stage prevention, boosting the immune system and an extension of a healthy life. This will lead to increased growth in the financial market and will also reduce the danger of the economy being volatile.

When the pandemic does eventually end, biotechnology funds will never be the same. There will always be a desire for pharmaceutical companies, there will be a non-stop demand for medicines.

The graph below shows the three-year movement of the Nasdaq Biotechnology Index.

 

Source: Market Watch

  • YTD: 5.46%
  • 1 month: -3.20%
  • 3 Months: -1.50%
  • 1 Year: 22.11%

Performance as at June 11 2020. Please note that past performance is not indicative of future returns.

We believe in diversifying an investor’s portfolio by investing a portion in technology and biotechnology sectors to enhance performance as these sectors are and will be part of our daily lives. Everything that is happening in the industry has been digitalised!

Health is the new wealth. The pandemic is causing many people to realise what is truly important in life, and to look at their personal health and longevity as the most valuable assets of all.

ADVISOR PROFILE

Michael Haldane

Global & Local Investment Advisors

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