I recently shared a story with you folks here.
A personal story.
I told you how my older daughter, Jordan, a college senior, is working on a school project paper trading a $100,000 portfolio focused heavily on tech stocks.
And that story led to a lesson in moneymaking. In honor of Jordan’s rightful suspicion of anything her “old man” tries to teach her, I dubbed it “The Skeptics’ Guide to Tech Investing.”
Today I’ve got another personal story. This one is about my younger daughter – and it also comes with a lesson.
This lesson requires we do something painful.
We’ve got to take a close look at the past few days’ extremely rocky markets… the down days we’ve seen in the tech-heavy Nasdaq Composite… and the news-driven shellacking served up to the likes of Facebook Inc. (Nasdaq: FB) (privacy concerns), Amazon.com Inc. (Nasdaq: AMZN) (a presidential tweet-storm), and Nvidia Inc. (Nasdaq: NVDA) (the fatal self-driving Uber crash).
But after we do that, we’ll be able to “see through” all the headlines about “tech” dragging down the rest of the market.
There we’ll find three huge profit opportunities that are going to come out of these rocky markets just fine.
Not a Pretty Picture
Like I said, my older daughter, Jordan, has become very interested in investing as she approaches the end of her undergrad year.
She shares that interest with her younger sister, Kendall, who loves poring over technicals. She has an artistic bent and likes the visual nature of charts.
I’ll never forget the time I showed her a choppy one and asked if she’d invest. “No way, Dad,” she said. “It’s just too indecisive.”
The chart I showed her is now lost to time, but it probably looked something like the Nasdaq chart since the start of the year…
I’m sharing this story because I think Kendall’s response speaks volumes about the volatility we’re seeing these days. Statistically speaking, it’s almost a coin toss as to whether the market will be up or down on any given day.
But I hope you don’t make a child’s classic mistake and shut your mind to investing in stocks just because the Nasdaq’s charts looks so ambivalent.
If you’ve followed along with me since the beginning of the year, then you already know I’ve been warning about a return to volatility on Wall Street.
And that’s exactly how events have played out. Since the correction that began on Jan. 29, the S&P 500 has regained nearly half its lost ground – and then lost it again.
And it’s done so in fits and starts. Consider that in the 36 sessions between Jan. 29 and March 20, the S&P had 17 winning sessions and 19 losers.
That kind of track record scares the daylights out many, if not most, investors.
But it shouldn’t.
In fact, right now is a great time to invest for the long haul.
If you choose the right investments, you can turn all this volatility to your advantage. You can do so by buying when so many others are panicking – add to your long-term gains.
Despite several global tech companies getting hit by bad news all at once, the road to wealth is still paved by tech.
So what we need now are great investments that take advantage of this powerful fact – and still help you sleep at night.
With that in mind, I want to share with you three great tech-focused exchange traded funds (ETFs) that have a solid history of crushing the market.
With these three Rocky Market Winners, you’ll be taking a targeted approach, but not have to worry that bad news will take down a single stock, as we’ve seen with Facebook, Nvidia, and Amazon over the past few days.
In other words, let the pros do all the heavy lifting and sit back and enjoy the gains. Take a look…
Rocky Market Winner No. 1: SKYY
The First Trust Cloud Computing ETF (Nasdaq: SKYY) is a play on the massive shift from desktop computing and storage to the cloud, a move that is having a big impact on the roughly $1 trillion spend on information technology services.
It’s composed of firms like Microsoft Corp. (Nasdaq: MSFT), now No. 2 in the market, and cloud hosting leader Amazon that will directly benefit from all the businesses moving everything to the cloud.
Composed of 30 winners, this ETF hardly stops there. It also has a big stake in IBM Corp. (NYSE: IBM). Big Blue’s artificial intelligence-driven Watson supercomputer platform was purpose-built to tackle the Big Data analytics challenge posed by the Internet of Everything, two cloud-centric cutting-edge fields.
Then there’s SAP SE (NYSE ADR: SAP), a roughly $21 billion database juggernaut that’s using the cloud to target clients well beyond its Fortune 1000 base. It’s now pursuing all 600,000 online firms operating in the United States.
This is a strong performer. Over the past two years, it has gained roughly than 80%. That’s better than double the S&P 500’s 34% gain over the period.
Rocky Market Winner No. 2: HACK
To grasp just how much is up for grabs in cybersecurity, you only need to know one number – 143 million. That’s the number of U.S. identities compromised in the recent hack at credit-reporting firm Equifax Inc. (NYSE: EFX).
And that’s where the ETFMG Prime Cyber Security ETF (NYSE: HACK) comes in.
Debuting in November 2014, HACK is the first true cybersecurity-focused ETF. It has invested in 47 companies whose primary business is cybersecurity but still offers us some interesting diversification.
The ETF has targeted companies that offer hardware, software, and consulting and services to defend against cybercrime
Of those, roughly 56% cover systems software and 17% are related to communications systems. The rest cover such areas as aerospace and defense, IT services, and application software.
Roughly 75% are U.S. firms, with the bulk of the rest based in Israel, the United Kingdom, and Japan. HACK holds several firms that cater to big corporations and government agencies, which means they have stable, long-term sales based on years-long contracts.
HACK also offers us market-beating performance. Over the past two years, it’s up 77%, beating the broad market by almost exactly double.
Rocky Market Winner No. 3: PPA
These are once again the salad days for defense firms with the Trump administration adding $700 billion to the Pentagon’s budget. That will keep a tight focus on miltech that makes our fighting forces far more lethal than our foes.
That’s why you should take a good look at the PowerShares Aerospace & Defense ETF (NYSE: PPA).
The fund has a solid mix of companies that includes cutting-edge small caps like FLIR Systems Inc. (Nasdaq: FLIR), the world’s predominant maker of commercial thermal-imaging cameras, and AeroVironment Inc. (Nasdaq: AVAV), a leader in drone technology that supplies the Pentagon with unmanned vehicles used for battlefield intelligence gathering.
But the heart of this ETF is its top 10 holdings. They include many well-capitalized companies that have succeeded for decades regardless of Washington’s defense budget battles.
These firms also are set up to take advantage of President Donald Trump’s plans for more soldiers, aircraft and ships as well as advanced technology. And they’ll benefit from the president’s new national security adviser, John Bolton, who’s itching for some action against the likes of North Korea and Iran.
Raytheon Co. (NYSE: RTN) is a full spectrum company that provides the Pentagon with systems for electronic warfare, laser rangefinders, military training, and advanced radar. Northrop Grumman Corp. (NYSE: NOC) has a wide spectrum of operations covering everything from advanced sensors to missile defense to cybersecurity.
In other words, this ETF literally covers every aspect of the U.S. military’s programs with an emphasis on sophisticated technology.
This is another top-performing fund, with two years gains of 62%. That beats the S&P by 82%.
Each of these winning Rocky Market Winners has compiled an excellent track over a long enough period that we can project with confidence that good days still lie ahead.
Moreover, we’re now mostly past trade-war fears, and the big losses seem contained to specific stocks. Outside of that, there’s nothing new in the market from the long view to cause the market to go down.
But even if we see the daily ups and downs continuing into the second quarter, these three plays will help you reach your goal of making enough wealth to sleep soundly.
Have a great Easter weekend. I’ll see you back here soon.