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Whether you’re a first-time investor or you’ve traded stocks for decades, you’re likely looking for the best breakout stocks in a specific trend.
When we look back on the incredible surge of consumer spending in the smartphone space, for instance, the obvious winner in the category has been Apple Inc. (AAPL).
The creator of the iPhone has sold roughly 2 billion of these devices since its inception, according to Horace Dediu, an analyst with Asymco.
However, at the onset of the smartphone megatrend, investment in Apple was risky. Nokia, Motorola, and BlackBerry-maker Research in Motion were the leaders by market share in this industry. Former Microsoft CEO Steve Ballmer was once quoted in USA Today saying, “There’s no chance that the iPhone is going to get any significant market share.”
Of course, hindsight tells us he was wrong.
But it’s an important lesson in how to invest in breakout technology trends and not put all our money on one horse.
Using ETFs to Cash in on a Long-Term Trend
If you’re going to invest in a trend, one that could revolutionize the economy or a sector like the smartphone has, you need to widen your net for greater returns.
That’s why “passive” investors might want to invest in specific sector or industry exchange-traded funds (ETFs) that own many stocks tied to an underlying trend.
An ETF is a type of tradeable asset that tracks an index, commodity, sector, or other underlying assets. Instead of just one company, the fund invests in a variety of different assets. These funds trade on the stock market just like any other shares and can be bought and sold during the day.
I mentioned Apple a moment ago.
There are more than 300 ETFs that own a stake in Apple today, and roughly 200 equity or stock ETFs have Apple as a top-10 holding. That’s for good reason. The company is a massive cash cow and is the largest public company by market capitalization, at more than $2.2 trillion.
Apple is part of a variety of technology ETFs like the Technology Select Sector SPDR Fund (XLK), which tracks the performance of the S&P 500 technology index. It is also a part of 25 ETFs that are considered “socially responsible.” These funds invest in a variety of companies that are focused on reducing carbon emissions, improving company ethics, or bringing about other social change.
In each ETF, managers are investing in a different trend or asset class. And instead of having direct exposure to just one company, investors can capitalize on continued growth and success in a specific segment of the market.
Is This the Next Big Consumer Trend?
If smartphones were the hot consumer trend of the 2010s, then the 2020s could belong to another technology: the electric vehicle (EV).
Not only are consumers becoming more environmentally conscious, but governments around the globe continue to push policies aimed at reducing emissions and limiting production of the internal combustion engine.
A recent mandate by the Biden administration aims to ensure that at least 50% of the vehicles produced in the U.S. by 2030 are electric. Since the early days of the EV market, investors have speculated on which company will be the leader in market share for this sector.
Some investors believe it will be Tesla, which continues to reflect a remarkable expected growth rate based on a price-to-earnings ratio of 409.8. Others believe it will be Volkswagen (VWAGY), the world’s largest automobile manufacturer, which is still trying to recover from its 2015 emissions scandal.
It’s worth noting that just because a company has succeeded in the past, it is not guaranteed to be the leader come 2030. Just ask Nokia and BlackBerry, which once led global market share in cell phones but have seen their popularity collapse due to rivals like Apple.
Instead of speculating on companies like Tesla, Volkswagen, or newcomers like Lordstown Motors (RIDE) or NIO (NIO), investors can tap into the broader expected growth of the sector.
And they could do so with the Global X Lithium & Battery Tech ETF (LIT).
This ETF invests in the complete supply chain of lithium, a metal that is essential for the development of electric vehicles. According to market estimates, the average electric vehicle requires 22 pounds of lithium during production.
LIT invests in companies all around the globe that are linked to the materials, financials, industrials, information technology, and consumer products in the EV space.
The roster includes lithium producers like Albemarle Corp. (ALB), auto manufacturers like Tesla, materials players like Australian giant Pilbara Minerals, and many more.
Right now, it’s difficult to know which companies will be on top come 2030. So, we can invest in the trend through an ETF and ride the growing demand in the space over the next decade.
And for greater peace of mind, we continue to look at the signals offered by TradeSmith Finance. According to our latest indicators, the LIT ETF has been in the Green Zone and in a momentum uptrend for more than two months.
This is only one long-term trend that offers incredible upside for investors.
I’ll dig into yet another tomorrow and give you the name of another ETF that carries similar upside and momentum.