At this point in the market cycle, most alert participants appreciate the shadow the Silicon Valley establishment casts across the rest of Wall Street in the pandemic era. After all, these stocks can seem invulnerable to the health crisis or even prosper from the disruptions universal quarantines have created.
Factor out the five largest stocks -- all traditionally but loosely classified as "technology" -- and the rest of the S&P 500 is still down almost 9% so far this year. I'm talking about Apple Inc. (NASDAQ:AAPL), Microsoft Corp. (NASDAQ:MSFT), Amazon.com Inc. (NASDAQ:AMZN), Facebook Inc. (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOG). Between them, they've grown their market capitalization a healthy $2.3 trillion this year, enough to spawn another Apple-sized company in the process.
The S&P 500 as a whole, however, has only appreciated $1.5 trillion over the same period, which suggests that a net $800 billion has flowed out of the old economy into these five stocks. But while the Big Five (call them the FAAMG) now account for 23% of the S&P 500, only Amazon and Apple have truly become breakout stars of the COVID economy. Amazon, of course, delivers what brick-and-mortar retailers now struggle to provide, And Apple is the hub of the stay-at-home entertainment universe.
Whether you believe these two companies can continue to support the market as a whole for the long term, it is clear that both have come a long way since the 1990s technology boom, when Apple was struggling to remain relevant and Amazon was a niche book seller. Apple has led multiple consumer electronics revolutions, pivoting from iPod to iPhone and now contemplating the true market potential of the Apple Watch. Amazon has retooled its operation to replace essential retailers if necessary in a complete quarantine situation.
They've both changed the world. But other companies are now ready to change the world again, and for investors, the future matters more than the past. The technologies of tomorrow are already benefiting from the COVID disruption and realizing their potential . . . it's just that they're hard to see behind the giants.
Global X has built ten Disruptive Technology funds that concentrate on emerging and overlooked companies ready to disrupt the current economic status quo much as the dot-com winners changed the world two decades ago. Three are delivering higher YTD returns than either Facebook or Microsoft. Eight are outperforming Alphabet.
What are these hot themes? The hottest of all, perhaps surprisingly, is Video Games & Esports (HERO), which has only lagged Apple by a few percentage points YTD. While NVIDIA Corp. (NASDAQ:NVDA) has been a major contributor to that success, this industry is really less about high-speed graphics processors than an insatiable demand for home entertainment within the pandemic. The portfolio is global, incorporating leading game developers in Singapore, China and elsewhere as well as familiar names to U.S. customers like Nintendo.
The Social Media ETF (SOCL) has outperformed Facebook, its heaviest-weighted holding. Here too, the global approach has opened up opportunities in markets like Hong Kong, Russia and South Korea as well as making room for emerging twists on the familiar media sharing model. Spotify Technology SA (NASDAQ:SPOT), for example, has become a revelation with its recent focus on podcasting as a way to bring isolated audiences together online. It's up 79% YTD.
Then there's the Lithium & Battery Tech (LIT) fund, which is essentially a basket that tracks Tesla Inc. (NASDAQ:TSLA) and its ecosystem. Once again, while Elon Musk's brainchild has been a major contributor to the fund's success, the real benefit here is that only 20% of the portfolio is traded in the United States. Investors looking for access to the battery economy in China and beyond need to come here.
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