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There may be danger in disruption.
Disruptive technologies will be a headline risk for all investors in the coming years, says Will Rhind, founder and CEO of independent exchange-traded fund issuer GraniteShares.
“I think the biggest forward-facing risk for all investors is technological disruption,” Rhind, whose company presides over a number of commodity- and yield-based ETFs, said Monday on CNBC’s “ETF Edge.”
Marketwide tech disruption has picked up steam faster than some may think. A recent Accenture analysis of over 3,600 companies making a minimum of $100 million in annual revenues found 63% of them at risk of major disruption, with 44% showing signs that they could become susceptible to tech disruption in the future.
Much of this trend’s inherent risk to investors is tied to their appetite for growth, Rhind said.
“People are desperate for growth,” he said. “You see that in the [U.S.-China] trade talks and people yearning for something to get done so that we can get back to a situation where markets are growing or economies are growing again.”
Disagreements over tech have become a central issue in the U.S.-China trade dispute. As the two countries battle for global technological leadership, China’s prowess in and practices around the areas of artificial intelligence, robotics, 5G and semiconductor chips have become what some have characterized as potentially unbreachable hurdles in the trade talks.
That’s seriously impacting global growth, Jay Jacobs, head of research and strategy at Global X ETFs, said in the same “ETF Edge” interview.
“Just last week, the [Organization for Economic Cooperation and Development] cut their global growth expectations from 3.2% to 2.9[%],” citing trade tensions as a top source of economic damage, Jacobs said. “That means there’s not a lot of growth out there.”
And while “we’re seeing strong returns in some … traditionally boring asset classes like [the iShares 20+ Year Treasury Bond ETF] TLT and gold,” investors have yet to realize that parts of the market are poised to grow regardless of the economic layout, he said.
“Which parts of the economy can continue to grow? We think it’s disruptive technologies that are going to take market share from existing processes,” said Jacobs, whose firm presides over the Global X Robotics & Artificial Intelligence ETF and the Global X Cloud Computing ETF.
“That could be robotics that are now fully automating systems within manufacturing. That could be cloud computing, which is introducing tons of new innovative software into the enterprise space,” Jacobs said. “There’s a lot of growth out there.”
Tim Seymour, founder and chief investment officer of Seymour Asset Management, said in the same interview that one growth investment has proved itself in recent months.
“Think of all the headwinds we had in the third quarter,” he said. “Semiconductors effectively outperformed … the [Invesco QQQ Trust]. They outperformed the S&P [500].”
The VanEck Vectors Semiconductor ETF, which tracks the chip stocks, was up more than 8% in the third quarter after hitting an all-time high in July. The tech-tracking Invesco QQQ Trust and the S&P 500 both climbed by just over 1% in that time frame.
“These are some of the most innovative companies in the world that are exposed to more advanced technologies,” Seymour said.
And despite the weakness in some areas of tech, Seymour said he wasn’t one to suggest that investors shy away from a not-so-attractive group.
“I’m an emerging markets investor by background, so I’ve always taken the view that you can invest in a bad neighborhood,” he said.