Published by Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.)
Tech stocks continue to dominate, both in the news and in client portfolios. Amazon and Apple have both passed the $1 trillion milestone this year and Netflix, Facebook and Google also continue to rise. But, even as these companies post impressive gains, many investors are asking their advisors one key question: is the growth in tech stocks sustainable?
According to James Learmonth, Portfolio Manager, Harvest Portfolios Group Inc., the answer is a resounding ‘yes’.
“There are multiple long-term themes that make us believe the technology sector is really poised for continued long-term growth,” says Learmonth. “The internet of things, big data, the digitization of the consumer, and emerging tech like blockchain and artificial intelligence – all of these areas are poised to become much bigger than they currently are and drive the sector forward.”
Despite the astronomical growth of certain tech companies, Learmonth believes tech valuations remain compelling particularly given firms’ ability to accelerate free cash flow. Tech companies are not immune to economic cycles and double digit growth might not be possible every year, however the long-term growth prospects are just too good to ignore.
It’s for that reason that Harvest launched its Harvest Tech Achievers Growth & Income ETF (TSX: HTA, HTA.U); a fund that focuses on members of the S&P 500 Global Industry Classification Standards (GICS) Information Technology sector that have a market cap of greater than $10 billion. The ETF aims to generate capital appreciation, provide monthly cash distributions, and minimized overall volatility. Yet, despite the success – and noise – of FAANG stocks, this ETF does not own Amazon or Netflix.
“We very specifically defined information technology stocks using the S&P500 GICS classification system, and, under that, companies like Amazon and Netflix are considered consumer discretionary stocks,” Learmonth says. “That is not to say we do not play similar themes. On the ecommerce theme, for example, we have been playing through Ali Baba, one of the largest ecommerce providers in the world. The ETF does also own Apple, Facebook and Google.”
Tech stocks have been the top performers by some way this year, so it’s no surprise that Harvest’s ETF is also meeting expectations. The fund has been designed with a covered call strategy and is currently generating a yield of around 6.5%.
“Our strategy is to not write calls against more than 33% of our position, so typically we expect to capture around 70% of the benchmark performance, but we have actually achieved better than that,” Learmonth says. “As we have moved into a mid to late business cycle, we are getting attractive option premiums on this particular fund, which is helping investors to generate enhanced income in the current environment.”