Investing in the Next Wave of Tech

The following is part of a series originally published by RBC iShares, a strategic alliance between RBC Global Asset Management and BlackRock Canada.

"We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten,” wrote Bill Gates, Microsoft’s founder and one of the world’s greatest tech visionaries, in his 1996 book, The Road Ahead. Gates has been proven right time and time again – many game-changing tech-related predictions get made, but it can take a lot longer than people would like to see these innovations come to fruition.

The most successful products, though, can be game changers, with more recent technologies, such as mobile, streaming services, social media, e-commerce dramatically altering our way of life. With many of society’s deeply ingrained habits starting to evolve – people no longer need to work from an office, shopping can be done from home, a night out can happen with a virtual reality headset – newer and more significant technologies are still to come.

Harnessing the power of technological breakthroughs

Since Gates’ book came out, the pace of change has rapidly accelerated. In the last decade alone, everything from cloud computing to virtual reality has gone mainstream. But it can still take a while for society-altering innovations to take hold – autonomous vehicles, robotics and genomics are some of the innovations, for instance, have been talked about for years, but will only start seeing exponential growth over the next decade or two.

This is good news for investors who want to take advantages of these kinds of societal changes. By investing in the companies that are on the forefront of change, whether its businesses making next-generation technology or operations that will benefit from world-altering innovations, you may be setting yourself up for long-term growth. “Investing in quality companies can offer not just linear growth at or slightly ahead of the pace of inflation, but exponential growth, with the revenues in a number of upstart industry niches rising faster every successive year,” says Jeff Spiegel, Head of U.S. iShares Megatrend and International ETFs for BlackRock.

Investors who are looking to benefit from this long-term growth can position themselves early to capture products, companies, and industries driving change in the world, says Spiegel.

Capturing more than just the traditional technology sector

Since it is so difficult to know which companies will be the winners of the future, it’s hard to choose individual stocks. One option could be an exchange-traded fund (ETF). Not only do investors get a diversified basket of equities, with businesses of different sizes and offering different kinds of solutions, but they have a greater chance of exposure to a few world-altering names.

With an ETF that focuses on exponential technologies, investors also get access to more than just companies in the traditional technology sector. They’ll own companies that are the beneficiaries of innovations through the value chain. Take electric vehicles (EVs), for example The confluence of consumer demand, regulatory change and falling costs doesn’t just support the performance of EV-makers. It can also boost returns for materials companies that produce lithium, nickel, copper and other key EV battery inputs. Likewise, the increased adoption of online shopping during the COVID-19 pandemic didn’t just benefit retailers, it boosted real estate investment trusts focused on industrial properties where e-commerce warehousing and logistics take place.

The tailwind of technological change

Transformations of this sort cut across the economy, taking in consumer, industrial and communications services companies as well as those creating and marketing the technology itself.

Learn more in How to Find and Research ETFs.