Less than one year has passed since I first publicly discussed the “Technochasm” phenomenon that is dividing our economy — and our stock market — into distinct groups of winners on one side … and losers on the other.
But already, we are witnessing the power of this trend.
Tech-focused and tech-enabled companies are leaving their old-school counterparts in the dust — both on Main Street and on Wall Street.
Members of Fry’s Investment Report are seeing the effects.
Year-to-date, the tech-heavy Nasdaq 100 index is up more than 40%, which is eight times the return of the Dow Jones Industrial Average.
Not even a global pandemic could thwart the Technochasm’s power. In fact, this crisis accelerated the trends that were already underway.
Because of the Technochasm’s effects, two of the ETF trades I recommended in Fry’s Investment Report have racked up sizable gains in short order.
Since recommending these two ETFs last March, the VanEck Vectors Video Gaming and Esports ETF (NASDAQ:ESPO) is up more than 75% … and the VanEck Vectors Semiconductor ETF (NASDAQ:SMH) is up more than 110%.
In both cases, these results are well above the gains of either the Dow or the Nasdaq 100.
In other words, these two ETFs are clear Technochasm winners.
Let’s take a closer look at both of them …
No Chips, No Technochasm
As the market plummeted and just days before it bottomed out on March 23, I recommended a position on VanEck Vectors Semiconductor ETF.
At the time, SMH had fallen more than 30% from its February peak, erasing all of its gains from the past two years.
All of the most impressive technological innovations rely on semiconductors of one sort or another, so in the context of a two- to three-year investment window, the ETF was very appealing.
At the time, I said this:
Interestingly, in an odd way the coronavirus could help boost semiconductor demand. Almost every commercial or recreational activity that eliminates or reduces human interaction relies on semiconductors.
In the world of personal amusement, think of gaming consoles, tablets, virtual-reality headsets, and smartphones. In the commercial space, robotics, AI, machine learning, computer vision, etc. all require computer chips of some sort.
Near term, of course, the epidemic is depressing demand. But long term, many companies might attempt to counteract the operational risks of the next global pandemic by shifting more of their processes to robotic or “smart” machines of some sort, rather than human beings.
That prediction turned out to be more or less correct, and our position in SMH benefited tremendously.
When countries around the world started to lock down or issue “stay-at-home” orders, stay-at-home investing turned into an investing trend.
Clearly, the tech sector is outperforming the broader market. But because we took a classic “picks and shovels” play on the sector, buying the tech behind the tech, Investment Report members are now holding a position that is performing much better than the broad tech stock indexes.
Since we added it to the Fry’s Investment Report portfolio on March 16, SMH is up by more than 110%!
Although the pandemic depressed semiconductor demand from various industries like auto manufacturing, total demand is still on track to increase from 2019 levels. And according to World Semiconductor Trade Statistics (WSTS), semiconductor demand should grow another 6% in 2021.
Clearly, the stay-at-home trend represents an acceleration of the megatrend we call the Technochasm.
Semiconductors are an essential part of everyday life, and the end of the pandemic won’t change that. Instead, the pandemic accelerated our reliance on them, boosting the value of this ETF.
The next pick I want to discuss has already been hinted at. Semiconductors power the technology driving the industry …
Throughout the pandemic, video-gaming has become one of the major shelter-in-pace activities. I predicted as much when I recommended the VanEck Vectors Video Gaming and eSports ETF in April.
The video-gaming industry was already growing briskly before the pandemic arrived on the scene. As I wrote then:
The eSports and video gaming sector was booming, even before the COVID-19 pandemic boosted worldwide gaming activity.
According to Newzoo’s “Global Games Market Report,” 2.5 billion gamers across the globe spent about $150 billion on games in 2019.
Well, if numbers from the World Economic Forum (WEF) are to be believed, those numbers have likely increased.
In September, WEF wrote:
In the year to date, $29.4 billion of video games have been sold in the U.S. – a 23% increase from the same period last year. The majority of that increase has been in content (the games themselves, either bought digitally or on discs), but sales of hardware (consoles and accessories) have also seen double-digit increases since the pandemic began. Consumers are buying more consoles, and those who already have consoles are buying more games to play on them.
But the increased sales are not just in the U.S., and not just on consoles. Mobile game sales on iPhones rose 44% in Japan and 20% in the European Union in July, according to data from Sensor Tower. According to Nielsen, as of June, 41% of self-identified gamers in France said they were playing more video games now because of the pandemic.
It seems safe to say that the larger player bases across Europe, North America, and East Asia will translate into more video-game revenue.
But has the pandemic been just as helpful to the esports portion of ESPO?
According to a report from eMarketer, the answer is complicated. As Business Insider reports:
Esports has not made up a significant portion of the heightened media usage during lockdown and survey respondents have expressed a stronger preference for other sports-related activities. However, video game tournaments starring professional athletes and the increased presence of esports on linear TV, may help to increase future viewership.
Media coverage of esports was favorable this year, and the industry had a much easier time adapting to the pandemic than other professional sports. But so far, the increased availability of esports content hasn’t resulted in more viewership.
Despite the limited growth of the esports wing of ESPO, my members’ position in this ETF is showing a nearly 80% gain at the time of this writing!
With gaming more popular than ever, it’s not hard to see why, and there’s always a chance that this hobby’s increased popularity bleeds into the esports segment.
These are just a few of the picks that populate the Fry’s Investment Report portfolio, and I haven’t stopped looking for undervalued stocks that will sail higher from the ever-changing winds of the stock market.
Good timing, combined with the power of the Technochasm, is what has led to our profitable success.
And I believe that will continue to be the case in 2021.
Find out more here.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.