Active Management Could Be Key to Quelling Tech Volatility


Technology stocks can be more volatile than the broader market, and that’s certainly true of those names in the disruptive growth camp, but when the sector is rallying, investors are often willing to overlook those volatility traits.

For much of this year, disruptive growth stocks have been out of favor, but growth stocks are recently showing signs of life, and that could put renewed attention on exchange traded funds such as the Goldman Sachs Future Tech Leaders Equity ETF (GTEK).

GTEK is higher by 8.32% over the past month. Alone, that’s impressive, but GTEK offers advantages beyond short-term performance. For example, the fund is actively managed, and that management style could prove useful for investors looking to avoid some of the volatility that’s often associated with disruptive growth investing.

“Our approach involves making incremental, measured adjustments in order to keep a balanced portfolio over time. Prior to January, Q4 2021 saw us lock in gains on select outperforming disruptors—rapidly growing companies challenging traditional business models. At that point, we moved capital into compounders (firms growing consistently and predictably) and evolvers (what we call mature businesses with durable revenue streams that are adapting to technological disruption),” according to Goldman Sachs Asset Management (GSAM).

Obviously, active management isn’t infallible, and GTEK isn’t guaranteed to deliver upside when the broader market declines. However, active management has benefits. As noted above, GTEK managers can take profits in winners. Sounds simple, but winners don’t always stay on top, as the turbulence in innovative growth stocks this year proves.

When stars fall, investors in index-based funds can be left vulnerable because those funds can eliminate positions simply because market conditions change.

Another point in favor of GTEK is that active managers can more readily identify compelling fundamental opportunities than an index can. Specific to GTEK, that’s a trait to consider today because after the punishment incurred 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 drawdowns have been driven by either fundamental downswings, monetary policy shifts or regulation,” concluded GSAM. “The biggest risk at present, in our view, would be a deterioration of fundamentals, but that’s not what we’re seeing, nor is it what we expect. On the contrary, fundamentals look strong. From a macro perspective, provided rates don’t reach levels seen in the 1980s, we believe the tech sector can cope well. It is worth noting that tech stocks historically tend to underperform ahead of rate rises but actually begin to outperform as rate rises take effect.”

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.