A list of dominant tech companies will look ‘very different’ a decade from now, says Goldman’s Katie Koch
Goldman Sachs Group has created an exchange-traded fund targeting the next generation of technology companies that will lead innovation, hunting globally for returns beyond the most popular names in Big Tech.The actively managed Goldman Sachs Future Tech Leaders Equity ETF will invest in listed companies with a market value of less than $100bn, steering away from US megacap tech stocks, according to a statement from Goldman on 16 September. The new ETF, which will trade under the ticker GTEK, seeks positions in companies in developed and emerging markets.”We’re helping our US clients get invested beyond the existing tech incumbents,” said Katie Koch, co-head of Goldman Sachs Asset Management’s fundamental equity business, during a media briefing on the new ETF. “The world is changing very rapidly.”
A decade from now, the list of dominant tech companies will look “very different” than today, said Koch, with Goldman expecting it to be more global. Yet Goldman has come across many US clients with more capital allocated to one of the big tech stocks in the group known as FAANG — Facebook, Apple, Amazon.com, Netflix and Google parent Alphabet — than the rest of the “tech ecosystem,” she said.
Many investors are overexposed to US megacap tech stocks, according to Koch. She said the top 1% of stocks in the S&P 500 — the US large-cap benchmark whose biggest sector is information technology — represent almost a quarter of the index’s market capitalisation. Goldman’s ETF aims to help investors diversify their portfolios and position them on “the right side of disruption,” Koch said.
“We’re now at a key inflection point where that innovation is expanding beyond the US and down the market-cap spectrum,” Sung Cho, a portfolio manager of the new exchange-traded fund, said during the call.
The massive number of people carrying around smartphones globally has opened up investment opportunities, including in areas such as e-commerce, payments and online entertainment, according to Brook Dane, also a portfolio manager of the ETF. Public cloud technology has meanwhile globalised innovation, allowing new businesses to open anywhere and grow without vast sums of capital, Dane said on the call.
“Digital transformation,” which may be expressed through software holdings, and cybersecurity are other areas identified by the fund, according to Dane. He said the COVID-19 crisis that began last year has spurred companies to plan for increased tech spending, partly because they want more modern, flexible software systems.
Cho, meanwhile, pointed to opportunities in fintech as well as “smart components” that are primarily semiconductors. He said the “semi shortage” for electronics and cars during the pandemic has shown how critical semiconductors are.
Entegris, a company in the semiconductor sector, and Bill.com, a company that’s a leader in “business-to-business digitization of payments,” are among the holdings of the new ETF, Cho said. Cybersecurity vendor Palo Alto Networks is another example of a company in its portfolio, according to Dane.
Meanwhile, the S&P 500 rose 0.9% on 15 September, posting a 19.3% gain so far this year, according to FactSet data. The tech-heavy Nasdaq Composite index advanced 0.8% on the same day for a year-to-date gain of 17.6%.