work from home / the design garage

For better or worse, 2020 was a pivotal year for the ETF marketplace and the broader economy.

The emergence of the Covid-19 pandemic at the beginning of the year spurred and accelerated employment and societal trends that might otherwise have taken decades to realize. There is arguably no better example of this than the widespread acceptance and adoption of working from home (WFH).

In June, Statistics Canada reported that nearly 40% of Canadians moved to WFH during the pandemic — up from 10% pre-pandemic. The architecture that has enabled the shift has been driven largely by technology companies that have seen their uptake — and, subsequently, their valuations — skyrocket in less than a year.

Boardroom meetings were replaced with Zoom calls – and Zoom’s stock is up more than 500% since the start of last year. Team-driven projects moved from desk huddles to Slack, whose stock price has almost doubled since the start of last year.

Indeed, these tech companies have ultimately been the forerunners of the market recovery since the Covid-19-driven “Black Monday” crash on March 16, 2020. The NASDAQ 100, which has a 97.79% weight to technology, is up by about 45% from a year ago.

While some companies did well in 2020, other tech companies haven’t seen the same success. Take, for instance, Nikola Corporation, a company that became popular for its plans to manufacture a completely electric truck. After hitting highs in June 2020, the stock has fallen dramatically on the back of short-seller allegations. This example underlines the risk of single-stock investing and highlights one of the virtues of ETFs: a diversified basket of companies that provides better risk-management and potentially less volatility.

While investors could have ridden the broader 2020 tech boom by investing in an index ETF that replicates the NASDAQ, that approach, while profitable, could prove to be myopic for a few reasons.

For one, the NASDAQ is U.S.-based and is therefore, for better or worse, vulnerable to the broader influences of the United States’ economic health and market fluctuations. In a U.S. presidential election year, there is the potential for larger volatility spikes, which could impact the NASDAQ’s performance.

Instead of just looking to capture the NASDAQ, many investors chose to invest in technology ETFs – thematic funds, either passively or actively managed, that provide exposure to one of the world’s top performing sectors in 2020.

In Canada, there are more than 37 thematic technology or technology sector ETFs available. Many of these employ global mandates that offer more than just the big technology names on the TSX and American indexes, offering investors a simple and accessible avenue to gain exposure to top-performing technology companies that are situated and trade in technologically advanced countries like Japan, China, Germany and Israel.

Additionally, the wide range of tech ETFs available offer investors a chance to choose particular subsets and industries within the broader technology sector that they believe might be best positioned for future growth. There are ETFs that specialize in robotics – machines that are increasingly being used in surgical suites, building vehicles and more –  as well as ETFs that focus on the burgeoning cybersecurity industry, and an ETF in the U.S. that focuses on companies that enable WFH technologies.

For investors looking to trade tech ETFs, there are a few tips for evaluating these funds, including looking at the concentration of the top 10 holdings, the associated management fees, the potential impact of domestic and foreign dividends on a client’s tax liabilities and, increasingly, taking a look at the individual holdings from an ESG perspective to ensure that the companies are not involved in operations that may conflict with a client’s ethical portfolio decisions.

The ETF marketplace in Canada is growing and technology ETFs are one of the most interesting subsets. Investors who believe that technology is the future may want to consider adding technology ETFs to their portfolio.