While Big Tech Takes a Breather, Two Innovation ETF’s Present a Buying Opportunity

By: Andrew McShane

Technology stocks went on a rocket ship in 2020.

Let me be more specific; 5 Big Tech companies went on such a tear last year that they became 23% of the S&P 500 and turned the entire index positive while 490 of the 500 companies were still negative.

Apple, Amazon, Microsoft, Facebook and Google had a tremendous 2020. Investors flocked to these stocks because they believed they had the best chance of delivering profits during a time of global uncertainty.

Well, it looks as if that Big Tech’s rapid ascension was due for a breather. In the past five days, Tech has dropped approximately 7%, represented by XLK, the S&P SPDR Technology Sector.

This correction should not come as a surprise and should be viewed as a healthy part of overall growth. If anything, this correction now presents greater buying opportunities for 2021.As Tech’s prices fall more in line with their true value, their strong balance sheets and steady revenue streams put them in a position them for sustained growth through 2021 and beyond.

In fact, these buying opportunities extend themselves beyond Big Tech and into their younger cousins; Innovation and Disruptive stocks.

Innovation and Disruptive stocks are classified as companies whose focus is to develop a technology or service that has the potential to change the way the world works; much the same way Big Tech already has.

There are two Innovation ETF’s that are capturing the Innovation growth right now and are making their case as an aggressive but risky investment in 2021.

Two Innovative and Disruptive ETF’s for 2021

1) ARKK: The Large Cap Innovator ETF

ARK’s actively managed Innovation ARKK ETF seeks long-term growth of capital by investing into companies that benefit from the development of new technology or scientific research. Areas of investment may include DNA technologies, Next Generation Internet, or Industrial Innovation.

ARKK was launched in 2014 and after several years of slow and steady growth, ARKK exploded for 167% growth in the past year. When digging into ARKK’s holdings, it’s no wonder they realized such massive growth last year. Their top holdings include some of the largest, innovator stocks on the market.

Here are the top 5 Holdings of ARKK and their performance over the last year:

  1. Tesla (TSLA) 1 Yr Performance: +342%
  2. Roku (ROKU) 1 Yr Performance: +311%
  3. Square Inc (SQ) 1 Yr Performance: +261%
  4. TELADOC Health (TDOC) 1 Yr Performance: +157%
  5. BAIDU (BIDU) 1 Yr Performance: +182%

ARKK’s big name holdings will most likely allow it to continue to thrive as long as investors continue to bolster tech.

2) MOON: The Small Cap Disruptor ETF – 

The Direxion Moonshot Innovators ETF offers exposure to the 50 most innovative US companies that have the potential to disrupt existing technologies. These 50 companies are deemed to have high “early-stage composite innovation scores.

The Moonshot ETF was listed on Nov 12, 2020. So even though it missed riding the coattails of Big Tech in 2020, it has still realized a 95% gain in just over 3 months. MOON is unlike ARRK in that their holdings are primarily comprised of lesser-known, small cap stocks.

Here are the top 5 Holdings of MOON and their performance over the last year:

  1. Vuzix (VUZI) 1 Yr Performance: +1,204%
  2. Microvision (MVIS) 1 Yr Performance: +2,914%
  3. Tenable Holdings (TENB) 1 Yr Performance: +70%
  4. FuelCell Energy (FCEL) 1 Yr Performance: +753%
  5. Nano Dimension (NNDM) 1 Yr Performance: +906%

As you can see, MOON has some serious disruptors in their holdings. While these stocks remain volatile by the nature of their product and their early stages, MOON continues to show outstanding viability into 2021.

In Summary: 

With the power of Big Tech leading the way, this pullback presents more of a buying opportunity than a reason for defense. While the strength of Big Tech’s balance sheets provide more stability, MOON ETF and ARKK ETF present two opportunities to invest in some innovative companies that have the power to change the future.

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