Let's say I am bullish on "Cloud Computing" and I want to make one investment, but do not want to invest in any specific company (e.g. Amazon). How could I invest soundly in the "Cloud Computing" market, betting that this market will rise generally, while hedging against any individual company failing?
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1Sector funds is what you are looking for. However they may not have that fine of a granularity. Perhaps you can go "technology" but not "cloud computing". These technology fads come and go.– Pete B.Commented Jan 9, 2017 at 19:59
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1 Answer
You need to hope that a fund exists targeting the particular market segment you are interested in. For example, searching for "cloud computing ETF" throws up one result.
You'd then need to read all the details of how it invests to figure out if that really matches up with what you want - there'll always be various trade-offs the fund manager has to make. For example, with this fund, one warning is that
this ETF makes allocations to larger firms that are involved in the cloud computing space but derive the majority of their revenues from other operations
Bear in mind that today's stock prices might have already priced in a lot of future growth in the sector. So you might only make money if the sector exceeds that predicted growth level (and vice versa, if it grows, but not that fast, you could lose money). If the sector grows exactly as predicted, stock prices might stay flat, though you'd still make a bit of money if they pay dividends.
Also, note that the expense ratios for specialist funds like this are often quite a bit higher than for "general market" funds. They are also likely to be traded less frequently, which will increase the "bid-ask" spread - i.e. the cost of buying into and getting out of these funds will be higher.
answered Jan 9, 2017 at 20:09
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What do you mean " might have already priced in a lot of future growth"? How could future growth be price in. Commented Jan 9, 2017 at 20:38
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2Analysts try to estimate how the company will grow over the next year and future years, these estimates may already be priced into the stock or ETF, if actual growth underperforms these estimates then the price will usually fall.– user9822Commented Jan 9, 2017 at 22:11
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@gridsndrs growth in the sense of the market growing, turnover/sales becoming larger etc - the stock price might already be assuming that the company's profits and income will increase over the coming years as a result. Commented Jan 9, 2017 at 22:15
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@Ganesh is that what is called "Over-Valued", when a company under performs based on its stock price? Could one make money if the stock hit its estimates over a certain period?? Commented Jan 9, 2017 at 23:13
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