Growth in the consumer use of smartphones and internet-based communications are having an impact on disruptive technologies like 5G and the internet of things, according to an investment note by Alerian, an independent index provider that operates the S-Network Disruptor Indexes(SM). A disruptive technology is one that displaces an established technology and shakes up the industry or is a ground-breaking product that creates a completely new industry, according to TechTarget. Indices that track disruptive technologies can be a complement to an investor’s growth stock portfolio.
“As global connectivity and digital communication grows, technology has become increasingly important in the economy – particularly disruptive technology or technology that drives significant, impactful growth,” Alerian wrote on Seeking Alpha. “Disruptive technology is particularly attractive to some growth investors, since the players are often newer companies with smaller market capitalizations that partner with more established firms to revitalize mature industries.”
Investing in disruptive technology stocks has been one of the hottest market trends of the past year, Dave Sekera, chief U.S. market strategist for Morningstar. But he warns investors must endure a high degree of risk and elevated volatility for the possibility of higher-than-average returns. As such, he advises investors to make sure their portfolios are well-diversified.
The result of connectivity growth can be seen in the increase in connectivity between mobile phones, smartwatches, TVs, smart homes, and autonomous cars, in addition to commercial applications like RFID tags and automated manufacturing. Advancements in connectivity can also be seen in general areas, such as machine-to-machine connections, artificial intelligence, financial technology, health care information technology.
“The tech disruptor universe offers a unique opportunity relative to the broad technology space, as it comprises newer constituents (median age of approximately 15 years) that are below $50 billion in market capitalization with a median of just over $4 billion (and an average market cap of close to $9 billion),” Alerian wrote.
By J. Sharpe Smith Inside Towers Technology Editor