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The stock market could become one big tech sector

In 1821, you could expect to live to 35. Yet, these days, you will most likely live into your 80s. Technology enriches us, improves our health, and has given us a quality of life never experienced before in human history.

March 25, 2022

Technological progress is exponential, which is well described by Moore’s law. For instance, the power of a supercomputer from just a few decades ago can now sit snugly in our pockets as a smartphone.

The investment potential is tremendous. It is highly likely that, in just a few decades, every sector from consumer staples to financials will be a technology sector. We are already witnessing this expansion today. Companies such as Amazon and Tesla, which are very much driven by technology, sit in the consumer discretionary sector of the MSCI USA Index.

The new global technology economy

We are witnessing firsthand the emergence of a new, technologically-driven economy. Technology is going to completely transform most aspects of our future lives.

Investors naturally want to be part of this story. But it is not so easy. The pace of change has sped up. Business cycles are much shorter as new technologies come and go (see chart below). Gaining exposure to technological trends as they develop is also difficult. Sector funds based on standard industry classifications do not fully reflect disruption and innovation as they happen.

Number of years needed to reach 50% adoption of specific technologies in US households

Number of years needed to reach 50% adoption of specific technologies in US households
Source: “Our World in Data,” Credit Suisse calculations. This visualization details the rates of diffusion and adoption of a range of technologies in the United States, measured as the percentage of US households with access or adoption over time.

ETFs are a powerful type of investor tech

This is where index funds and exchange-traded funds (ETFs) come in. They let investors quickly tap into these trends and they automatically rebalance according to the indexation methodology used.

Why index funds are relevant to technology

Today, the trends we are seeing in technology go far beyond high-growth Internet companies. We have seen the rapid emergence of smart health firms and advanced artificial intelligence companies making their presence felt during the pandemic.

We are also seeing technological changes that could completely restructure global supply chains, energy consumption, and industrial production. In a new low-carbon world, whole sectors, like transport, could be electrified. Advances in manufacturing, like 3D printing, may reduce input costs, while new advances in battery technology could provide a constant supply of renewable energy.

Therefore, taking into account tech companies that do well on environmental, social, and governance issues (ESG) is essential.

An innovative new technology index is now available

There are many powerful tech trends that can be found across every sector. This is what the MSCI USA Tech 125 ESG Universal Index aims to capture for investors. Rather than focus on a single standard sector, it contains the most disruptive and innovative tech companies in the MSCI USA Index. These include companies identified as being related to blockchain, the Internet of Things, electric vehicles, the sharing economy, and medical technology.

Any stock involved in severe ESG controversies as assessed by MSCI over the past three years is excluded. The weights within the index are also tilted using a combined MSCI ESG score. ESG is an important feature of the index because it aims to align with long-term sustainable returns according to time lines that next-generation technology aims to deliver.

To help investors gain access to this index, Credit Suisse Asset Management has launched a new ETF – the CSIF (IE) MSCI USA Tech 125 ESG Universal Blue UCITS ETF, which tracks the MSCI USA Tech 125 ESG Universal Index.

It physically replicates the index and uses an Irish ETF structure, which means that a reduced rate for US withholding tax will apply (i.e. 15% instead of 30%). It is therefore one of the most cost-efficient technology-thematic ETFs in Europe. Plus, it also considers ESG criteria, which qualifies it as a product classified under Article 8 Sustainable Finance Disclosure Regulation (SFDR).

Why should an investor consider this ETF

Active portfolio managers can use a tech ETF like this to diversify their portfolios, especially if their positions are focused on just a few mega-tech companies. This ETF may also appeal to family offices, wealth managers, private bankers, and ordinary investors, as it gives them access to a long-term theme in a cost-effective and flexible way.

We believe that all of this, however, must be done within an ESG framework. If we do indeed enter a new, technologically-driven economy in the future, the returns generated today must be sustainable. We believe that our ETF is forward-looking, holistic, and meets these needs.

Technical data  
SIN IE000YKE1AQ5
Bloomberg ticker SIX: USTEC SW
Borsa Italiana: USTEC IM
Deutsche Börse: CSYU GY
Bloomberg benchmark ticker NU746671
Total expense ratio 0.18%

General risks of index funds

  • The funds do not offer capital protection. Investors may lose some or all of the capital they invest.
  • The funds’ investments are subject to market fluctuations.
  • The funds do not significantly outperform their benchmark indices.
  • Shares are subject to market, sector, and company-specific risks that may result in price fluctuations.

The product’s investment objectives, risks, charges, and expenses, as well as more complete information about the product, are provided in the prospectus (or relevant offering document), which should be read carefully before investing.

It is not possible to invest in an index. The index returns shown do not represent the results of actual trading of investable assets/securities. Investors pursuing a strategy similar to an index may experience higher or lower returns and will bear the cost of fees and expenses that will reduce returns.

Andrea Semino

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