Structural Growth: Never Too Late to Invest

October 28, 2021

Internet & E-commerce

Structural growth is driven by technological advances that bring about permanent shifts in economic activity. The long-term nature of this type of growth makes it more suitable for strategic allocations versus trades. Key

Topics:

  • Why Investors Are Still Early. Opportunity.
  • OGIG: Performance Driven by Revenue Growth
  • OGIG Portfolio (New Tech) vs. Old Tech

Why Investors Are Still Early. Opportunity.

Valuations are still attractive as new tech companies may grow into their valuations. Even still, at current valuation levels, the companies in the O’Shares Global Internet Giants ETF (OGIG) appear cheap relative to a more traditional tech index, the Nasdaq 100 based on relative price/sales, as of 9/30/2021.

Source: Bloomberg Finance L.P. Monthly data as of 9/30/2021. OGIG represented by the O’Shares Global Internet Giants Index. Past performance does not guarantee future results. The referenced index is shown for general market comparisons and is not meant to represent the O’Shares Funds. Investors cannot directly invest in an index.

Internet technology and e-commerce companies in OGIG are driving innovation and thus helping to accelerate and sustain long-term structural growth. This is illustrated by the tremendous revenue growth generated by the companies in the OGIG portfolio. The total revenue of the companies in the portfolio is over $1.6 trillion, compared to $800 billion 3 years ago, a growth rate of over 100%.

OGIG: Performance Driven by Revenue Growth

Revenue growth may be the best indicator of a company’s ability to create value for investors. It should come as no surprise that stock price is inextricably linked to sales growth. Faster growing companies should outperform slower growing companies, all things equal. What may come as a surprise is the degree of outperformance generated by the fastest growing companies.

Source: Bloomberg Finance L.P. data as of 9/30/2021. Global technology stocks represented by S&P Global Information Technology Index. Past performance does not guarantee future results. The referenced index is shown for general market comparisons and is not meant to represent the O’Shares Funds. Investors cannot directly invest in an index.

OGIG Portfolio (New Tech) vs. Old Tech

A portfolio of new tech stocks, driving innovation and structural growth provides a differentiated approach to investing in tech. As companies in internet technology and e-commerce evolve, traditional sector classifications for tech become obsolete. The overlap between OGIG and the Technology Select Sector and Nasdaq 100 index is low, reflected by the high degree of active share. The table below highlights a key difference between new and old tech, revenue growth.

OGIG Portfolio (New Tech) vs. Old Tech

Structural revenue growth. OGIG ~2x revenue growth vs. Old Tech

Source: Bloomberg Finance L.P. Data as of 09/30/2021. TTM: Trailing 12-Month. Forward Revenue Growth: Average of the forward 1FY and 2FY est revenue growth. FY: Fiscal Year. Technology Select Sector: Technology Select Sector Total Return Index: The Technology Select Sector Index is a modified cap-weighted index. The index is intended to track the movements of companies that are components of the S&P 500 and are involved in the development or production of technology products. The index which serves as a benchmark for The Technology Select Sector SPDR Fund XLK, was established with a value of 250 on June 30, 1998.

Definitions:

Active Share: Measure of the percentage of stock holdings in a manager’s portfolio that differs from the benchmark index.

OGIG Index: The O’Shares Global Internet Giants Index (Ticker: OGIGX) is a rules-based index intended to give investors a means of tracking stocks exhibiting quality and growth characteristics in the internet technology and e-commerce business segments and pass screens for gross margin and cash burn sustainability. Companies included in OGIGX derive at least 50% of their revenues from a) internet technology companies whose principal business is to provide the technologies that support internet commerce; and b) internet commerce companies whose principal business is to sell products and services via the internet.

Nasdaq 100 Index: The NASDAQ-100 Index is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and international issues listed on the NASDAQ. No security can have more than a 24% weighting. The index was developed with a base value of 125 as of February 1, 1985. Prior to December 21,1998 the Nasdaq 100 was a cap-weighted index.

Price/Sales Ratio: The price-to-sales ratio is a valuation ratio that compares a company’s stock price to its revenues.

S&P Global 1200 Information Technology Index: The S&P Global 1200 Information Technology index consists of all members of the S&P Global 1200 that are classified within the GICS® information technology sector.

Revenue Growth: Trailing 12 months

1st Quartile: Contains the top 25% of companies in the S&P Global 1200 Information Technology Index based on average 3-year revenue growth.

2nd Quartile: Contains the top 25%-50% of companies in the S&P Global 1200 Information Technology Index based on average 3-year revenue growth.

3rd Quartile: Contains the top 50%-75% of companies in the S&P Global 1200 Information Technology Index based on average 3-year revenue growth

4th Quartile: Contains the bottom 25% of companies in the S&P Global 1200 Information Technology Index based on average 3-year revenue growth.

Old Tech: Traditional information technology sector.

New Tech: Internet technology and e-commerce companies including those involved in digital advertising, social media, digital entertainment and
“cloud”.

Performance data quoted represents past performance; past performance does not guarantee future results. Index performance is not illustrative of fund performance. Please visit www.oshares.com for fund performance. The O’Shares Global Internet Giants ETF (OGIG) seeks to track the performance (before fees and expenses) of the O’Shares Global Internet Giants Index (OGIG Index).

Related Content

OGIG Portfolio: What’s New?

OGIG Portfolio: What’s New?

Portfolio Highlights Strong revenue growth (TTM): 50% Companies at the forefront of digital transformation: cloud, cybersecurity, e-commerce and more. Designed To Own Large Cap Internet Stocks With Stronger Growth Metrics Enterprise software is the largest allocation...

OGIG Portfolio Structure, Strong Revenue Growth Metrics

OGIG Portfolio Structure, Strong Revenue Growth Metrics

For a breakdown of the OGIG Index and why now might be the time to invest in “new tech,” watch this short clip. [Webcast recorded 02/17/2022]OGIG Index Snapshot and Valuations SUMMARY KEYWORDSportfolio, revenue growth, oversold, stocks, cheap, business, price, sales,...

Market Volatility, Inflation and the Fed

Market Volatility, Inflation and the Fed

Mike Venuto, Co-Founder and CIO of Toroso Investments, and Connor O’Brien, CEO of O’Shares ETFs, discuss potential inflation risks, equity performance and more in this short clip. [Webcast recorded 02/17/2022]Markets and Economy: Fed, Inflation, Yields and Volatility...

Our Next Livestream Starts In

O’Shares Livestreams are usually on Thursdays at 11AM ET. Topics include current market investment themes and internet and dividend related research.

Subscribe to O'Shares Research

Investing in ETFs starts with understanding it. O'Shares publishes original research, subscribe for access to exclusive content and industry insights.