By Ambrose O’Callaghan
The North American stock markets have seen growth concentrated in a few sectors and companies instead of being widespread across market sectors/subsectors and companies – a market conditions referred to as a bifurcated market. That means investors have had to be selective to have success in the current environment. Technology has been and remains one of the top performing sectors in the market, bolstering its reputation as a reliable source of growth for investors. However, the new decade has introduced new dynamics and subsectors that investors must rely on for that superior growth. Today, I want to zero-in on the Harvest Tech Achievers Growth & Income ETF (HTA:TSX). Let’s jump in.
Why should you invest in the HTA ETF over the NASDAQ 100?
The NASDAQ is known for its technology-heavy weighting. Meanwhile, the NASDAQ 100 is made up of 101 equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ stock exchange. It is a market capitalization-weighted index. That means that the stock on the NASDAQ 100 is weighted based on their market capitalizations. For example, Apple (AAPL:NASDAQ), which boasts a market capitalization of $2.95 trillion at the time of this writing, boasts the largest weighting on the index. It is closely followed by Microsoft (MFST:NASDAQ).
Meanwhile, the HTA ETF is an equally weighted portfolio of 20 large-cap Technology companies that is diversified across the global technology sector. The software and semiconductors spaces remain the most dominant weightings in this ETF. This ETF has sought to target growth subsectors like artificial intelligence (AI) and semiconductors. These are the two sub-sectors I want to focus on today.
How is artificial intelligence (AI) driving growth?
Artificial intelligence (AI) refers to the intelligence of machines or software. As a field of study in computer science, it involves the development and study of intelligent machines. The AI space is geared up for promising growth in the years away. A recent report from Deloitte stated that AI is set to “substantially transform their industry in the next 3-5 years”. Indeed, adoption is reportedly significant on a per organization basis. The report states that 53% of organizations polled said they were spending more than $20 million over the past year on AI technology and talent.
Salesforce (CRM:NYSE) is a California-based company that provides Customer Relationship Management (CRM) technology that brings companies and customers together around the world. This company has a highly sophisticated AI development team. For example, Salesforce’s Marketing Cloud seeks to infuse AI into clients’ marketing to help drive customer engagement.
Meanwhile, the tech giant Microsoft owns 49% of OpenAI, the company that developed ChatGPT. Many competitors have introduced their own chatbots since ChatGPT made waves in November 2022.
How are geopolitics impacting the technology space?
Geopolitical events have had an outsized impact on market forces in recent years. A recent market disruption was stirred by the Russian invasion of Ukraine in February 2022. Meanwhile, the back-and-forth between the United States and China promises to have an impact on global markets for years to come.
The COVID-19 pandemic highlighted the fragility of global supply chains in the early part of this decade. That has been especially true in the semiconductor industry. Many companies in this space have struggled to obtain chips for their products. Approximately 75% of all semiconductor wafer fabrication capacity is in East Asia. China, with Taiwan, is estimated to control over 90% of manufacturing of the most advanced semiconductor chips. That has made Taiwan a geopolitical flashpoint to watch.
That high concentration has inspired western nations to pursue manufacturing programs of their own. For example, the U.S. CHIPS and Science Act was introduced to incentivize development of more domestic semiconductor production.
Here’s how the HTA ETF generates high monthly income
The HTA ETF was awarded with its second consecutive Refinitiv Lipper Fund Award in November 2023. Better yet, the HTA ETF has also increased its distribution for two straight years. This ETF last paid out a monthly distribution of $0.1200 per unit. That represented a current yield of 9.1% as at November 24, 2023. This is a fund that has achieved an annualized return of 13% since its inception on May 26, 2015. That means that unitholders have been able to take advantage of the high returns of the HTA ETF which include receiving attractive monthly distributions.
This ETF uses an active covered call strategy that enables it to generate attractive cash flows beyond the dividends of the underlying holdings by selling call options on or up to 33% of each position in the portfolio. This combination of market appreciation and higher option premiums has allowed the monthly distribution for the HTA ETF to be increased a few times since 2021.
Commissions, management fees and expenses all may be associated with investing in Harvest’s Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). The ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. The stocks mentioned in this article was for illustration purposes and should not be taken as an invitation to purchase or sell such stocks.