Rapid technological advancements worldwide and the growing adoption of cutting-edge technologies across several end-use industries have positioned the tech sector for significant growth and profitability in the foreseeable years.
While quality tech ETF Global X Cybersecurity ETF (BUG) could be a solid buy for portfolio diversification and solid returns, it seems prudent to hold ARK Innovation ETF (ARKK) and wait for a better entry point in this ETF.
Businesses across several industries increasingly leverage emerging digital technologies to lower costs by reducing manual labor, streamlining operations, and boosting efficiency. In recent years, the integration of data analytics, cloud, AI, IoT, ML, and other advanced technologies have risen to transform traditional processes and enhance customer experiences.
Considering the cloud’s tremendous potential, nearly 94% of enterprises use cloud services in 2023, while 67% of enterprise infrastructure is now cloud-based. The functional ability of cloud computing to improve business performance in enterprises of all sizes and the growing need for hybrid models are contributing to the increased popularity of cloud solutions globally.
According to a report by Grand View Research, the global cloud computing market size is projected to reach $1.55 trillion, growing at a CAGR of 14.1% from 2023 to 2030.
Further, the adoption of AI and its impact on businesses and industries is at a turning point globally. The latest annual McKinsey Global Survey on the current state of AI confirms the rapid growth of generative AI tools. Less than a year after most of these tools debuted, one-third of survey respondents reported using generative AI regularly for at least one business function.
While reported overall AI adoption remains steady at nearly 55%, more than two-thirds of organizations plan to increase their AI investments.
With the influx of consumer generative AI programs like OpenAI’s ChatGPT, the generative AI market is expected to explode, growing to $1.30 trillion by 2032 from a market size of just $40 billion last year, as per a report by Bloomberg Intelligence (BI). Research finds that the emerging industry could expand at a CAGR of 42% over the next ten years.
The emergence of smart devices, the rising number of e-commerce platforms, and rapid technological advancements have boosted the demand for cybersecurity products and services. The global cyber security market is expected to grow at a CAGR of 12.3%, reaching $500.70 billion by 2030.
Amid rapid digital transformation worldwide, the demand for IT services is growing exponentially. The global IT market is estimated to reach $12 trillion in 2027, growing at a CAGR of 7.9%.
Given the industry’s bright growth prospects, investing in top-performing tech ETF BUG could be wise now. However, it seems prudent to hold ARKK and wait for a better entry point in the ETF.
ETF to Hold:
ARK Innovation ETF (ARKK)
ARKK is the flagship actively managed fund by ARK Invest, an advisory firm led by Catherine Wood. The fund seeks long-term capital growth by investing in companies that benefit from developing new products or services, technological improvements, and advancements in research relating to DNA technologies, automation, AI, and fintech innovation.
With $7 billion in assets under management (AUM), ARKK’s top holdings are Tesla Inc. (TSLA), which has a 10.35% weighting in the fund, followed by Coinbase Global, Inc. Class A (COIN) at 8%, and Roku, Inc. Class A (ROKU) at 7.91%. The fund has a total of 32 holdings, with its top 10 assets comprising 61.08% of its AUM.
ARKK’s expense ratio is 0.75%, higher than the category average of 0.49%. The fund flows came in at a negative $165.66 million over the past month and a negative $696.06 million over the past six months. It has a beta of 1.64.
ARKK has gained 28.6% year-to-date to close the last trading session at $39.18. However, the ETF has slumped 7.5% over the past month. The fund’s NAV was $39.14 as of October 17, 2023.
ARKK’s POWR Ratings reflect this mixed outlook. The fund’s overall C rating equates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ARKK has a grade C for Buy & Hold. Of the 54 ETFs in the B-rated Technologies Equities ETFs group, it is ranked #54.
To access additional ARKK’s POWR Ratings (Peer and Trade), click here.
ETF to Buy:
Global X Cybersecurity ETF (BUG)
BUG offers exposure to companies that stand to benefit from the growing adoption of cybersecurity technology, such as those with principal business in the development and management of security protocols preventing intrusion and attacks to systems, networks, applications, computers, and mobile devices.
BUG tracks the performance of the Indxx Cybersecurity Index. With $599 million in AUM, the fund’s top holdings include Zscaler, Inc. (ZS) with a 10% weighting, followed by CrowdStrike Holdings, Inc. Class A (CRWD) at 8.18%, and Palo Alto Networks, Inc. (PANW) and Okta, Inc. (OKTA) at 7.47% and 5.98%, respectively.
The fund currently has 24 holdings in total, with its top 10 assets comprising 63.19% of its AUM.
Over the past month, the fund flows came in at a negative $15.92 million. It has a beta of 0.86. In addition, BUG’s expense ratio is 0.51%, lower than the category average of 0.55%.
BUG has gained 6.5% over the past six months and 19.3% year-to-date to close the last trading session at $24.71. Also, it has surged 5.6% over the past year. The ETF’s NAV was $24.74 as of October 17, 2023.
BUG’s strong fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade, Buy & Hold, and a B for Peer. BUG is ranked #12 of 119 ETFs in the same group.
Click here to see all the BUG ratings.
What To Do Next?
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ARKK shares fell $0.45 (-1.15%) in premarket trading Wednesday. Year-to-date, ARKK has gained 25.17%, versus a 14.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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