ETF News

A lot can change in a year. In looking back at the 2022 calendar year performance of the S&P 500 Index, the year ended with a return of -18.11%. However, despite the issues that have plagued markets thus far in 2023, the performance of the index has been markedly better, with a year-to-date and 1-year trailing return performance of 16.89% and 19.59%, respectively, as of June 2023. What is more interesting is that the performance of the index is not being powered in a balanced manner, but solely by a select few sectors, namely technology, communications, and consumer discretionary.

In this article we will look at the state of the US tech sector, its contributions towards the current US equity market performance and how Canadian investors can participate in the sector’s strong performance with the RBC Global Technology ETF (RETC).

The Tech Landscape

The technology sector has proven to be a source of strong returns thus far in 2023, providing a year-to-date and 1-year trailing return performance of 40.37% and 38.14%, respectively, as of June 2023. The rationale behind the resurgence of the tech sector is varied, but two ongoing developments – mass layoffs and the shift toward Artificial Intelligence are contributing factors.

As stated in many press releases and published articles, many tech firms have – and still are – ‘reorganizing’ their staff to levels they deem appropriate, given the current market conditions. While layoffs are bad due to the individual implications associated with them, the market does view these activities as ‘cost cutting’ measures that will ultimately benefit these organizations in the long run.

In the last three months, artificial intelligence has been a top-of-mind topic for many corporations, as almost every firm has mentioned their use of it or stated their intention to utilize it within their business operations. The firm that has seen a material benefit from the AI wave is NVIDIA Corporation. Originally known for making the type of computer chips that process graphics, particularly for computer games, Nvidia hardware underpins most AI applications today.

The last quarterly earnings report from Nvidia noted over $2 billion in profit in three months. This latest push comes after Nvidia’s business boomed early in the pandemic during a Graphics Processing Unit (GPU) shortage, while they were in demand for PC gaming and cryptocurrency mining before those markets fell back throughout 2022. In the present, the popularization of ChatGPT, which was trained using 10,000 of NVIDIA's GPUs clustered together in a supercomputer belonging to Microsoft, has made the firm (i.e., NVIDIA) a central player in the AI revolution.

So what does all this mean? Against the backdrop of a macroeconomic environment still filled with uncertainty, the technology sector – particularly ‘big tech’ companies are thriving and may even be considered a safe haven for investors at this juncture.

Investing in Big Tech

The RBC Global Technology ETF (RTEC) provides investors with broad-based exposure to Big Tech firms, such as Facebook, Apple, Amazon, Netflix and Alphabet’s Google — plus other actively-traded technology growth stocks. Though the ETF performance of this strategy is short, RBC does have a mutual fund version of the mandate that allows investors to observe the efficacy of the manager’s strategy within the technology space.  As seen from the following chart, over the lifetime of the mandate thus far, investors have grown their wealth considerably.

For Canadian investors interested in gaining access to the global technology sector, the RBC Global Technology ETF (RTEC) provides access to industry leading and best-in-class firms that are advancing the innovation landscape and creating new avenues for wealth generation.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.