What Are “Stay-at-Home Stocks?
As we continue to deal with the world-wide pandemic and the changes to our daily lives as we knew them before Covid-19, most people would agree a lot has changed. There have even been a few coined terms in the investing world that have arisen from the pandemic, with the most popular being the “stay-at-home stocks. For a large part, this new phrase has become the ‘new’ FANNG stock group.
The stay-at-home stocks have been on a tear this year as they have seen their popularity not only as investments increase, but they have more users who, in most cases, are spending more money. Revenues from these companies have grown at a tremendous clip in 2020. Even though some are still not yet profitable, many believe it is just a matter of time until they become wildly profitable and monster growth stocks for years to come.
The most popular reason for this type of thinking is not because people believe the pandemic will last for years and years, but because the pandemic has changed our lives so that we will not likely revert to our old habits styles of living. For example, many believe Zoom Video (ZM) has already become a verb and will dramatically reduce the need for some business travel and a large amount of ‘in person’ meetings that we all used to sit in on. Furthermore, the reduced need for ‘in person’ meetings will likely continue to reduce the need for employees working out of a central office instead of working remotely.
There are countless ways how the pandemic and the ‘new normal’ has changed our lives and how these ‘stay-at-home stocks’ will continue to perform well in the future. So, let’s look at a few ETFs that focus on the ‘new normal.’
The first is the Direxion Work From Home ETF (NYSEARCA:WFH). This ETF is just like you would imagine it would be from its name. The ETF tracks an equally weighted index of global companies that provide technology supporting a more flexible work environment. The fund focuses on remote communications, cybersecurity, online project and document management, and cloud computing technologies. Zoom is the ETFs top holding, and while the top ten stocks make up 27% of the fund, the fund overall only has 41 positions. It does have a 0.45% expense ratio and no dividend yield. It first traded on 6-25-2020 but already has $118 million in assets under management. Due to the new listing, we don’t have a lot of performance information, but the fund is up +7.23% over the last three months, despite being down -3.66% over the last month.
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Next, we have the Global X Telemedicine & Digital Health ETF (NYSEARCA:EDOC). EDOC is an ETF that tracks a market-cap-weighted index of companies in the global health care industry with high exposure to telemedicine and digital health. The index is constructed using an algorithm that analyzes specific keywords from company filings to identify companies that have the strongest ties to the ETFs theme. The theme is focused on companies around the world, including ADRS, that are involved in telemedicine, healthcare analytics, connected healthcare devices, and administrative digitization are considered.
EDOC’s inception date was 7-29-2020, has $346 million in assets and 41 holdings. It has an expense ratio of 0.68% and does not yet pay a dividend. It’s top ten holdings make up 44% of the fund, with iRhythm Technologies being the top holding at 5.6% of assets.
And finally, the Global X Cloud Computing ETF (NYSEARCA:WCLD). This ETF tracks an index of U.S. companies primarily focused on cloud software and services. The fund has 98% of its money in Software and IT services, with 1.8% of Healthcare Equipment assets. Once again, Zoom is the top holding, but CrowdStike, Salesforce, Zendesk, and Workday are all also found in the top ten holdings.
Speaking of the top ten holdings, they represent 22% of the fund, representing 55 total positions. The fund has no yield and charges a 0.45% expense ratio while having $797 million in assets under management. The fund was started in September of 2019 and has a one-year performance history of an 84% return. Year-to-date, the fund is up 64%.
The Direxion Work From Home ETF is a little more diverse than the other two. However, EDOC and WCLD do have similar holding as WFH. If you are looking to invest in this sector, now is a good time to do so, and you really can’t go wrong with any of the three options mentioned above.