What You Need to Ensure While Thinking of Investing in Some Sector Never walk blind into any sector just because people think it has significant promise, unless you have data to back up the optimism. TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
Direct market access trading offered by online stock brokers is attracting many people to consider the stock market. A great deal of success in stock trading comes from the right thought process. There is a great deal of thinking and consideration involved, and once you get that right, your actions could give better results. Whenever you decide to invest in some sector, you need to realize what its future prospects are. You could hear a lot of noise about various industries that could become the next big thing. But are there solid reasons for thinking that way? Let’s look at an example from the AI industry to figure out how you need to reason and what factors you need to consider before deciding to invest. An Example from Artificial Intelligence One industry that seems to be in everyone’s minds is artificial intelligence (AI). While there are many examples of AI at work all around us, it still is a technology of tomorrow since there is a lot more potential yet to be realized. But though the full potential of AI is still to come, it does offer accessible investment opportunities, particularly because of the presence of ETFs. Nasdaq.com contributor Todd Shriber points out that there are over 40 ETFs listed in the US that have some kind of exposure to the AI industry. And there are increasingly more ETFs specifically focusing on AI and related tech. Investing in these ETFs could help you to cash in on the potential. Global X Future Analytics Tech ETF (AIQ) is one of these ETFs and it follows the Indxx Artificial Intelligence & Big Data Index. Shriber reckons that while this ETF, like many other AI ETFs, does not have the track record that investors usually consider for evaluating funds, it represents an industry that has major potential for the future. So it shouldn’t be ignored. What Makes This AI Fund Promising? The recently published report by the International Data Corp. (IDC) states that global AI spending could touch $35.8 billion by 2019, which is a massive 44% rise over 2018.The average market value of AIQ’s components, is $80.78 billion. The fund contains 80 components and some of them are growth stocks. Microsoft ($MSFT), Intel ($INTC) and Qualcomm ($QCOM) are among the top 10 components in certain value indexes. The priceto-earnings ratio of the fund is 21.32 and the price-to-book ratio is 4.47. These figures are not too much, particularly when you consider the Nasdaq-100 Index’ figures of 18.71 and 6.00.
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The growth feel of the AIQ fund is derived significantly from the broader AI trends. According to the IDC report, the AI systems could double to $79.2 billion by 2022. It also predicts a 38.0% CAGR (compound annual growth rate) through the 2018 to 2022 forecast period. Shriber believes this growth will be fostered through the increased use of AI in various sectors – healthcare, retail, financial services, etc. Significant Potential for AI in Retail and Banking The IDC report states that AI systems’ global spending is fuelled by the retail sector. In 2019, companies in the retail sector would invest $5.9 billion on product recommendations, shopping advisors and automated customer service. The report also states that banking will follow the retail sector in AI adoption, with the possibility of $5.6 billion being invested in AI-enabled solutions, primarily in analysis and investigation of fraud and “threat intelligence & prevention”. And when it comes to thematic ETFs such as AIQ, the ability to perform better than the traditional sector funds is what makes them attractive. $AIQ has been up 20.92% this year, and has exceeded the Technology Select Sector Index, that too by 270 basis points. So when you have solid growth opportunities for a sector, with reports such as the one by IDC affirming its potential, you know you aren’t walking blind into the sector should you decide to invest in it. This strategy applies when you think of investing in any other industry. Data, data and lots of it!
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