How To Invest In 2013′s Breakthrough Technologies
For Wall Street, the technology sector has been one of the most rewarding–yet frustrating–industries to invest in, as this corner of the market goes through periods of rapid revolutions, booms, and busts. But for those willing to stomach the risk, technology investments are some of the most promising, as developments made by these companies can impact a wide array of industries, making them more efficient and ultimately more profitable. The key to successfully capturing the industry’s success is to stay on top of all the latest tech news and developments, including even the more “far-fetched” innovations [see The Best (And Worst) Performing ETFs For Every Quarter].
For those wanting to cash in on where the tech sector will be going in the near future, we highlight some of the Massachusetts Institute of Technology’s top breakthrough technologies of 2013, and which ETFs to play:
Tapping Into Deep Learning & Artificial Intelligence
According to the Massachusetts Institute of Technology (MIT), one of the leading breakthroughs in technology is something called “deep learning.” This “intelligent” software essentially attempts to mimic the activity in layers of neurons in the neocortex – the part of the brain where thinking occurs. Deep learning software “learns” to recognize patterns in the digital world, including images, sounds, and other data. Though this concept of having software simulate the neocortex’s “neural network” has been around for some time, new developments in computer engineering and math have allowed the technology to finally get its start.
Spearheading the push towards deep-learning technology is the think-tank team at Google (GOOG), which has already introduced deep-learning software to the public, including the use of the technology in its latest Android mobile software to cut speech recognition error. Other big names in the field are Microsoft (MSFT), as well as International Business Machines Corp (IBM) – the creator of the Jeopardy!-winning Watson computer, which uses some deep-learning techniques and is now being trained to help doctors make better decisions [see The Biggest Technical Glitches On Wall Street].
For investors looking to make an ETF play on the companies making big leaps in deep-learning technologies, there are several options:
U.S. Technology ETF (IYW, A): This ETF offers exposure to all three companies, allocating between 8%-10.5% of AUM towards Google, Microsoft, and IBM. State Street’s XLK also provides similar exposure.
DJ Internet Index Fund (FDN, B+): This fund is more targeted towards internet companies, and is a good pick for investors wanting to place their bets on Google in the deep-learning race. PowerShares’ PNQI also allocates roughly 8% to the internet giant.
Biotech Breakthroughs: Prenatal DNA Sequencing & Memory Implants
As though it was plucked out of a sci-fi flick, 2013 saw one of the most innovative breakthroughs in biotechnology: prenatal DNA sequencing. Illumina (ILMN), the maker of the world’s most widely used DNA sequencing machines, recently acquired Verinata – a startup company from Redwood City California. Together with Verinata, Illumina hopes to be the leader in the genome revolution by developing noninvasive technologies to sequence DNA of a human fetus before birth. While there is still a long road ahead for prenatal DNA sequencing, as well as several potential political roadblocks, the technology seems quite promising with its ability to detect genetic disorders such as Down Syndrome from traces of fetal DNA found in a syringeful of the mother’s blood.
Another seemingly impossible technology also emerged this year after biomedical engineer and neuroscientist Theodore Berger announced that he has deciphered the code by which the brain forms long-term memories. With this, Berger states that in the not too distant future, people with severe memory loss can get help from electronic implants that are designed to mimic the signal processing of the damaged neurons. And though no publicly traded company has picked up this technology yet, it may be fair to say that at some point (maybe not the near future), several major biotech companies will want to manufacture these groundbreaking memory chips.
Currently, there are 25 health & biotech equity ETFs available to investors, most of which offer meaningful exposure to Illumina:
NYSE Arca Biotechnology Index Fund (FBT, C+)
Dynamic Biotech & Genome (PBE, B)
Market Vectors Biotech ETF (BBH, B)
Nasdaq Biotechnology (IBB, A-)
3-D Printing – A Game Changer
One of the most buzz-worthy technologies seen this year is called 3-D printing, which is also called Addictive or Rapid Manufacturing. The technology creates a solid object of virtually any shape from a digital model. This is achieved through the successive layering of materials to form the literal building blocks of an object. And though the technology has been around since the 1980s, it has only been in recent years that 3-D printing has gained traction as big name players start adapting the technology [see What Investors Need To Know About 3-D Printing].
General Electric (GE) is just one of the companies making headlines in the industry. Last year, the company announced that it is preparing to produce a fuel nozzle for a new aircraft engine by 3-D printing, and expects that part to go into plants in late 2015 or early 2016. For those wanting to place a bet on GE’s industrial uses of 3-D printing, there are several notable ETF options:
Industrials ETF (VIS, A+)
Industrial Select Sector SPDR (XLI, A)
U.S. Industrials ETF (IYJ, A)
Global Industrials ETF (EXI, A-)
Other companies to keep a close eye on are 3D Systems Corp (DDD)–the original manufacturers of 3-D printers–Autodesk (ADSK) –software developers for 3-D printing–and Hewlett Packard Company (HPQ), which has had its eye on the technology for quite some time.
A Bright Spot In Solar Power
From an investment standpoint, solar power has been one of the most frustrating corners of the tech and energy world, as dismal returns and low demand have hindered solar from gaining significant traction Harry Atwater, however, believes he has developed a way for solar power to be more than twice as efficient as today’s solar panels. Atwater’s design uses technology that efficiently splits sunlight into six to eight component wavelengths, which produce different colors of light that are then dispersed to a cell made of a semiconductor that can absorb it. Currently, Atwater is testing three different designs that he thinks will more efficiently harness sunlight’s broad spectrum [see ETFs That Lost 50% In a Single Year].
Once Atwater’s technology comes to market, these solar power ETFs may stand to benefit:
Solar ETF (TAN, B+)
Market Vectors Solar Energy ETF (KWT, C)
High Voltage DC: The New “Supergrid”
Alternating Current (AC) is the most common power source used in transmission grids right now, but with recent developments, researchers have found that Direct Current (DC) power lines can transport electricity over long distances more efficiently. The main reason why DC has not been used as frequently is because high voltage DC could be only used for point-to-point transmission [see 5 Tweets The Shook The ETF World].
Thanks to researchers at the Swiss conglomerate ABB (ABLZF), DC may soon dominate electric grids. ABB announced that it has developed a practical high-voltage circuit breaker that disconnects parts of the grid that have a problem, allowing the rest of the grid to keep working. The company also noted that DC grids would allow connecting different sources of renewable energy more efficient, meaning more reliable renewable energy would be able to better compete with fossil fuels.
Currently, there is only one ETF that offers targeted exposure to electric energy infrastructure, as well as ABB stock: First Trust’s NASDAQ Clean Edge SmartGrid Infrastructure Index Fund (GRID, C+) .
Follow me on Twitter @DPylypczak.
Disclosure: No positions at time of writing.
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