Jeff Spiegel, Head of U.S. iShares Megatrend and International ETFs at BlackRock, shares the three themes within growth and technology that are “well-positioned to shine” in the new year, and why investors should consider being more precise about where to find opportunities amid challenging economic conditions. Spiegel also talks about expectations for dispersion across growth equities in 2023.
Amid a challenging economic outlook for 2023, what are some themes that will shine in growth and technology?
We believe investors may not be well-served by simply buying growth or tech. As more attractive valuations compel investors to revisit growth stocks in 2023, they may want to be more precise with their growth allocations and target 3 key opportunities rooted in structural trends alongside with powerful near-term catalysts.
The first area is beneficiaries of trillions in fiscal spending around the world: infrastructure, clean energy and electric vehicles (EVs). In the U.S., we recently saw the passage of the Inflation Reduction Act (IRA), which directed $370 billion to clean energy and EVs on the heels of 2021’s $1.2 trillion Infrastructure Investment and Jobs Act (IIJA). Aside from government spending, these thematic areas can also be resilient in the current market environment – especially where inflation is concerned.
Second is healthcare innovation. This last year saw amazing medical breakthroughs in genomics, immunology and neuroscience poised to transform health from mRNA vaccines to gene therapies and dementia treatments. This will not just continue in 2023 but accelerate, driving far more near-term revenue and performance than markets expect.
Third is non-cyclical areas of technology. We believe cybersecurity and robotics will prove counter-cyclical as the economy slows. They have moved from niche to necessity and are directly fighting today’s economic challenges but have been punished by a broader, seemingly indiscriminate tech selloff.
What is performance dispersion among equities and what are the expectations for dispersion across growth equities in 2023?
Performance dispersion is the extent to which stocks are moving up or down in unison. Low dispersion means that individual stocks tend to have similar returns to one another. That is what we saw the last three years from 2020 through 2022. In fact, over this period, dispersion was 20% lower than the norm when looking at growth and technology stocks.
We expect higher dispersion across growth equities to return in 2023. This means that investors can no longer buy growth or tech to seek outperformance but will need to be more selective in identifying winning themes from losers than in past years.
What are some investing opportunities for investors in technology and healthcare?
Two areas of tech staples that we think may be poised for near-term outperformance are cybersecurity and robotics.
Cyberattacks are up 81% over pre-pandemic levels and the economic costs that they inflict are nearly $10.5T, making cybersecurity spending the least likely tech expense to be cut according to CTOs across the country. Policy has also been supportive of cybersecurity: In 2022, President Biden signed the “Cyber Incident Reporting for Critical Infrastructure Act of 2022,” which requires hacks to be reported to the Department of Homeland Security.
At the same time, robotics is mission-critical in fighting supply chain challenges, labor shortages and inflation. Beyond rising labor costs, we are also seeing robotics growth being driven by falling robotics prices. As a result, we believe firms will double down on investments in the space.
The iShares Cybersecurity and Tech ETF (IHAK) and iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) are ways to invest in these themes.
On the healthcare front, we believe that the next 10 years will be as transformative for neuroscience as the last ten years were for genomics. We are already seeing huge advancements in unlocking the mysteries of the brain, notably the first major intervention against Alzheimer’s in 20 years. At the same time, the genomics revolution is far from over with a range of breakthroughs just ahead including mRNA vaccines against a range of diseases from influenza to HIV and a number of of cancers.
Neuroscience, genomics and immunology are all leading healthcare investment opportunities. With strong tailwinds for the year ahead, the iShares Neuroscience and Healthcare ETF (IBRN) and the iShares Genomics Immunology and Healthcare ETF (IDNA) provide access.
How should investors position their portfolios in the new year?
Fundamentally, investors in today’s market should be selective and thoughtful in seeking outperformance opportunities. Higher dispersion means growth and technology may no longer move in lockstep. By being more selective, investors can capitalize on attractive relative valuations and opportunities driven by fiscal spending, healthcare innovation and counter-cyclical technology. Megatrend ETFs bring this all together as they are built to encompass each theme’s value chain through a targeted basket of securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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