This is part of a four-part series exploring the four facets of the ProShares MSCI Transformational Changes ETF (NYSEARCA:ANEW) ETF: The Future of Work, Genomics and Telehealth, the Digital Consumer and the Food Revolution. Click on other themes where linked to read other installments. This article was updated on Jan. 26, 2021.
As they say, the only constant in life is change. And a time-honored investing strategy has been identifying companies that are innovating or disrupting the old guard, and then betting on those challengers who are about to change the world.
ProShares has embraced this approach with the ProShares MSCI Transformational Changes ETF (NYSEARCA:ANEW). This exchange-traded fund (ETF) has focused on four rapidly changing sectors: the future of work; genomics and telehealth; the digital consumer; and the food revolution.
This is the first in a four-part series digging into why these four areas are of particular interest and exploring some of the ways ANEW is helping investors capitalize on these tide shifts. Today, I’ll focus on the future of work.
In ProShares’s own words, “Cutting-edge technology that augments human work is no longer the realm of science fiction — it’s a business imperative. The Future of Work incorporates efficiency-enhancing technologies like artificial intelligence and robotics with those facilitating working from home, including video conferencing, cybersecurity and cloud applications.”
The fund charges an 0.45% expense ratio, or $45 per $10,000 invested annually.
I had a chance to discuss the ANEW ETF with Scott Helfstein, Executive Director of Thematic Investing for ProShares, and talk about how ANEW is focused on changes in how we work.
InvestorPlace: Work from home has obviously accelerated thanks to the Covid-19 pandemic. What do you see as the future of this trend once the pandemic passes? How about applications beyond the workspace?
Scott Helfstein, Executive Director of Thematic Investing for ProShares: Remote work in some form is here to stay. In a recent poll, only 26% of workers indicated a preference for full time work-from-home, but 66% want more flexibility to partially work remote a few days a week. Employers appear to be listening and seeing opportunity. A recent Cisco poll indicated 53% of senior executives would explore reducing their office space. Even a modest reduction in corporate office footprint could free up hundreds of billions of dollars, which could boost profitability and be a boon for spending on remote computing.
There have also been a series of acquisitions recently that reflect the opportunity companies are seeing in the future of work. Deals in the workplace productivity space include SalesForce’s (NYSE:CRM) acquisition of Slack (NYSE:WORK), Adobe’s (NASDAQ:ADBE) purchase of WorkFront, and Coupa (NASDAQ:COUP) buying Llamasoft. The cloud, collaboration, and remote companies are signaling their optimism for the future beyond the pandemic, even after a strong 2020.
InvestorPlace: Digital payments are a vital part of e-commerce, but their utility and versatility have given them even wider appeal. The market is expected to hit $7.6 trillion by 2024. Who do you see as some of the winners in this space? Do you see the space consolidating or getting even more broad?
ProShares: Digital payments are certainly an essential component of e-commerce, and both themes have benefitted from pandemic-accelerated growth. In fact, Bloomberg reports that digital payments volume could grow 15% annually through 2024. Beyond the e-commerce story, worldwide, 62% of merchants now accept contactless in-person digital payments, such as those from smartphone wallets.
Paypal’s (NASDAQ:PYPL) Venmo and Square Inc.’s (NYSE:SQ) Cash App are examples of payment systems that were accelerated by COVID-19. Square’s Cash App is a digital wallet that allows people to receive deposits and send money without traditional bank accounts or credit cards. Anecdotally, young people used the app to easily deposit stimulus and unemployment checks, leading to rapid adoption. “Cashless” businesses also grew during the pandemic from 8% to 31% by April 2020 based on those using Square.
The digital payments ecosystem is still dominated by a few large players, but innovative peer-to-peer payments systems like Venmo should increase competition and eventually lower prices. Rather than consolidation or broadening of industry players, there could be platforms where processors compete for users by bidding on transactions.
InvestorPlace: From sharing files to managing workflow, the Cloud has become a vital tool for huge swaths of businesses. What changes do you see coming for the Cloud, both from the user side and the provider side?
ProShares: Simply put, the Cloud is at the center of nearly every industry’s digital transformation. The long-term trend of businesses outsourcing their computing requirements has continued as companies seek efficiency, reduce costs, and capture and process greater amounts of data. Those changes were underway even before remote work and collaboration tools became critical functions.
The pandemic accelerated the move to cloud computing, as people have grown more comfortable with remote connectivity and collaboration tools. Products built on a cloud computing backbone, like Zoom, can very easily scale to accommodate for new users. And company results reflect the speed of the changes: Zoom revenue increased 300% earlier this year, and the NASDAQ cloud computing index as a whole had revenue per share jump 115% mid-way through 2020.
Artificial intelligence and decision support software is becoming an imperative in running an efficient business, an arms race. Companies are increasingly turning their attention to areas like machine learning, big data, and Internet of Things (IoT) that operate in the cloud. A company like Cloudera (NYSE:CLDR) helps to structure data, in areas like customer communications, which is a first step to drawing critical business insights. Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT)have been tapped recently by energy companies to provide machine learning, IoT, and other tools.
InvestorPlace: The world feels like it’s driven by data — and keeping that data secure is more and more vital. What are some of the industries that should see huge growth in cybersecurity needs?
ProShares: The past year saw record attempts at cyber intrusion and ransom attacks were particularly prominent. Cybersecurity is important irrespective of the industry, and an area that should see further growth in the years to come. Companies have to take the threat seriously whether a financial firm trying to protect accounts or assets, a digital media company protecting users search information, a business services firm preventing access to sensitive customer data, or a logistics company guarding trade secrets.
The first line of defense is the firewall, which is associated with some of the largest players in the cyber market like Norton (NASDAQ:NLOK) and Palo Alto Networks (NYSE:PANW), but building bigger virtual walls is not enough to keep out adversaries. Many other areas like cloud security, application security testing, network threat analysis, and privilege escalation are growing rapidly. Examples like Crowdstrike’s (NASDAQ:CRWD)endpoint protection or Okta’s (NASDAQ:OKTA) privilege escalation protocols are good examples of smaller innovative firms in the space.
Despite strong returns and fundamental performance in recent years, we still think there is a long runway for cybersecurity firms. First, the pie for cybersecurity spend is still getting bigger. Second, the business model has evolved with cyber forms migrating to software-as-service, but the cyber index still sells at a P/E discount relative to the cloud index. That gap should close with time and help to lift cyber companies.
InvestorPlace: Many people associate Blockchain only with cryptocurrency mining. How does the technology impact the future of how we’ll manage the workplace?
ProShares: Blockchain technology was invented specifically to enable cryptocurrency, so that perception make sense. Increasingly, people may also associate blockchain with the broader category of digital transactions, as use of block technology has expanded to this area. As a secure, decentralized, distributed ledger, blockchain’s use for digital transactions is a natural evolution of the technology that can apply in areas ranging from banking to supply chain management. That said, adoption and rollout of blockchain into many areas is proceeding slowly.
Innovative companies have also realized that elements of blockchain that allow for security and transparency may make it a solution in many other applications outside of currency transactions. For example, Micron Technology (NASDAQ:MU), a company held in ANEW, is exploring blockchain’s application in the decentralized but secure storage of healthcare data as well as supply chains. Baidu (NASDAQ:BIDU), also a company held in ANEW, provides a Blockchain-as-a-Service solution.
InvestorPlace: What are some of the big companies in ANEW that particularly service this “Future of Work” aspect, and why should investors be excited about them?
ProShares: The companies held in ANEW include larger firms with market leadership, but also smaller, rapidly growing companies. The juggernauts like Microsoft, Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google, and Apple (NASDAQ:AAPL) will continue playing a key role in facilitating remote work with cloud services, hardware, and connectivity software. That said, investors should also be aware of firms doing pioneering work in areas like industrial automation. Cognex (NASADQ:CGNX), which focuses on vision systems, is one example. Taiwan Semiconductor (NYSE:TSM), a leader in chip development, is another example of a firm at the intersection of automation and the future of work.
On the date of publication, Jessica Loder did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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