Tech stocks can be more volatile than the broader market, and these names certainly are in the disruptive growth camp, but when the sector rallies, investors are often willing to ignore these volatility characteristics. .
For much of this year, disruptive growth stocks have been out of favor, but growth stocks have recently shown signs of life, which could bring renewed attention to exchange-traded funds such as the Goldman Sachs Future Tech Leaders Equity ETF (GTEK).
GTEK is 8.32% higher over the past month. Alone it’s impressive, but GTEK offers benefits beyond short-term performance. For example, the fund is actively managed and this style of management could prove useful for investors looking to avoid some of the volatility often associated with disruptive growth investments.
“Our approach is to make incremental and measured adjustments to maintain a balanced portfolio over time. Prior to January, the fourth quarter of 2021 saw us post gains on some of the top performing disruptors, fast-growing companies that are challenging traditional business models. At that time, we moved capital into compounds (companies with consistent, predictable growth) and scalable (what we call mature businesses with sustainable revenue streams that adapt to technological disruption),” according to Goldman Sachs Asset Management (GSAM).
Obviously, active management is not foolproof and GTEK is not guaranteed to generate gains when the broader market declines. However, active management has its advantages. As noted above, GTEK managers can take profits on winners. It sounds simple, but winners don’t always stay on top, as evidenced by the turbulence of innovative growth stocks this year.
When the stars fall, investors in index funds can be left vulnerable as these funds can eliminate positions simply because market conditions change.
Another point in favor of GTEK is that active managers can more easily identify attractive fundamental opportunities than an index. Specific to GTEK, this is a trait worth considering today as after the punishment suffered by some disruptive growth stocks in the first half of 2022, a plethora of attractive fundamental opportunities are now available.
“Over the past decade, tech declines have been driven either by fundamental downturns, monetary policy shifts, or regulation,” GSAM concluded. “The biggest risk right now, in our view, would be a deterioration in fundamentals, but that’s not what we’re seeing, or what we’re expecting. On the contrary, the fundamentals seem solid. From a macro perspective, provided rates do not reach the levels seen in the 1980s, we believe the tech sector can do well. It should be noted that tech stocks historically tend to underperform before rate hikes, but actually start to outperform when rate hikes take effect.
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