Technology Funds Emerge as Winners from COVID-19
June 25, 2020 — London
Consumer demand and business continuity benefit specialist firms
The first half of 2020 has brought significant rewards for investors in technology funds and the outlook for post-COVID-19 looks bright for these investments, according to the latest issue of The Cerulli Edge―European Monthly Product Trends.
In contrast to broad equity indices such as the MSCI World and S&P 500—which are down slightly for the year as of June 10, according to FE Analytics—tech sectors have recorded significant gains. The S&P 500’s IT sector is up 14% and the MSCI World’s equivalent subset has gained 12.7%. Investors who bought into the S&P 500 five years ago have experienced a gain of 93.3% and those focusing on technology are up by 216.6%.
In the longer term, the technology sector could be a major winner from the economic recovery post-COVID-19, notes Cerulli Associates.
“An increase in home working has already benefited companies specializing in security software and cloud-based infrastructure and the longer the coronavirus pandemic lasts, the more these services will be relied upon. Such companies are expected to play a key role in business continuity planning,” says Fabrizio Zumbo, associate director, European asset management research at Cerulli.
Several exchange-traded funds (ETFs) tracking specialist indices focused on cybersecurity and digital infrastructure that have come to market in the past three years have been gathering fresh assets since the beginning of the COVID pandemic.
In addition, the advent of 5G mobile technology promises a boost for digital infrastructure and telecom companies. The development of 5G is not only a strong investment trend in itself, but could also boost tech companies that use mobile data, such as media-services providers.
- The European ETFs market recovered in April, gathering €10.6 billion (US$11.9 billion) of net inflows during the month to recover some of the large outflows suffered during March. ETF assets under management (AUM) increased by 8.6% month-on-month, reaching €815.3 billion at the end of April. All ETF asset classes enjoyed positive inflows: fixed-income assets attracted the most inflows, with €7.8 billion in net sales; commodity ETFs was the second-most-favored asset class, gathering €2.4 billion in April.
- Emerging market equities rebounded in April. The MSCI Emerging Markets Index increased in value, posting its strongest monthly gain in four years, though it underperformed the MSCI World Index. In terms of net new flows, the sector was still bleeding, posting net outflows of €695.6 million in April. Year-to-date, the sector has registered net outflows of €1.7 billion. Nonetheless, positive market performance saw the sector's total AUM increase 9.3% to end April at €244.7 billion.
- European cross-border funds recovered in April, gathering net new money of €65.5 billion, following record outflows of €181.1 billion during the March sell-off. Investors in the cross-border market remained mostly cautious during April, with money market funds and fixed-income funds registering the most net sales: €49.5 billion and €14.5 billion respectively. Equity funds attracted a more modest €4.2 billion during the month.