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As an investment manager, we are often asked what makes the Technology sector so special. Why are we such avid advocates for a collection of companies that operate in such obscure and little-known fields? Why not dedicate our capabilities to more practical endeavors like analyzing grocery stores or pipelines?
The answer is simple, we see Technology as not just a sector but an expression of human ingenuity and innovation. Technology companies are collections of some of the brightest people in the world with the most vivid imagination and strong-willed determination who have set out to disrupt a stale status quo. A follow up question that is also asked is “how do we know if they will succeed?”
The Next Chapter in Technology
To help answer these questions and shed some light on the inner thoughts of the great minds at TD Asset Management Inc. (TDAM), Vitali Mossounov, Portfolio Manager and Global Technology Analyst recently authored an article titled The Next Chapter in Technology. In the article, Vitali does an excellent job discussing how he believes conditions are ripe for technological success and how the decade of the 2020s may be a potent incubator for technological disruption.
Up until now, we believe that the fruits of innovation have been disproportionately harvested by the Big Tech companies. Specifically, the large platform operators of Apple Inc., Alphabet Inc. (Google LLC), Amazon.com Inc. (Amazon), Meta Platforms Inc. (Facebook, Inc.), and Microsoft Corporation. Collectively, these five companies have used the conditions of sufficient buildings blocks, receptive population, inexpensive capital, and absent regulation to ride the smartphone revolution to unprecedented heights of market leadership and concentration. The 2010s belonged to the large internet platforms: they emerged from being niche companies into near literal owners of the tech universe.
We believe that the current platforms will likely remain relatively dominant forces in global innovation, business, and capital markets for years to come. However, we see three forces as potentially capping incremental growth:
- Emerging and intensifying regulatory headwinds driving higher costs while constraining revenue opportunities
- High penetration into their respective total addressable markets limiting revenue growth rates
- Rising competitive forces that challenge the dominance of the Big Tech platforms
Over the next decade, we expect to see the continued rise of a new generation of successful large-cap tech companies. These are anticipated to come in two forms: some may be outright challengers to Big Tech’s way of doing business (e.g., Shopify Inc. vs. Amazon) while others may piggyback on what has been already built by the big platforms.
Here comes TECI
Against this backdrop, we are excited to announce the launch of our second technology ETF, the TD Global Technology Innovators Index ETF (TECI). TECI aims to build on the success of the TD Global Technology Leaders Index ETF (TEC) by providing investors exposure to, what we believe, are faster-growing, more disruptive technology companies. Instead, its top holdings consist of prominent, fast-growing disruptors still in the early to middle points of their life cycle.
We launched TEC in May 2019 which is designed for investors who want to maximize their participation in the technology trends of today and can be a perfect solution for those lacking material technology exposure or presently finding their exposure through inefficient vehicles. TECI on the other hand is targeted to investors that want to maximize their participation in the trends of today and tomorrow.
Depending on an investor's goals and needs, from a tech standpoint, TDAM has you covered. Whether it is exposure to the big players, an allocation to the growth trends of today, or a bit of both, investors can gain access to these different options through both TEC and TECI.
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