Capturing Tech Growth and Income Opportunities in 2024

1. Tech sector prospects remain strong for 2024 despite economic uncertainty, driven by AI innovation.
2. Covered call strategies on tech stocks can generate steady income while retaining some growth.
3. Harvest Tech Achievers Growth & Income ETF provides tech stock exposure, income generation and growth.
4. Paired Harvest Tech Achievers Enhanced Income ETF uses leverage to further boost income and returns.
5. Both Harvest tech ETFs have multi-year track records and attractive risk-adjusted returns.

The past year was challenging for many areas of the stock market, with the exception of a few high-profile technology stocks. The tech sector largely buoyed the S&P 500 upward in 2023 while most other sectors struggled amid higher interest rates. For financial advisors and investors evaluating this area, tech’s prospects remain positive for 2024, according to James Learmonth, senior portfolio manager at Harvest Portfolios Group Inc.

He states, “Big tech performed tremendously in 2023, and that will likely continue. Similar magnitude gains in 2024 are less probable, but emerging technologies still incite much enthusiasm.”

Tech Stocks Outlook 2024: Growth and Income Strategies

Innovations in artificial intelligence (AI) have driven the share prices of tech giants like Microsoft, Alphabet, Apple, Tesla, Amazon, NVIDIA and Meta higher. As Mr. Learmonth notes, “Many analysts predict AI could enter its next phase this year and next.”

Specifically, he highlights the rise of non-cloud AI offerings that device manufacturers will soon integrate into tablets, phones and other gadgets. However, some speculate that if economic stagnation persists alongside elevated inflation and interest rates, investors may lose their appetite for AI and related tech trends. Yet from a long-term perspective, the sector’s temporary headwinds matter little given its enduring growth trajectory.

One dilemma is crafting risk-adjusted tech exposure without much, if any, dividend income. Utilizing covered calls for a portion of the tech allocation furnishes a solution. As Mr. Learmonth explains, “Though these firms promise superior long-term expansion, covered calls can generate extra cash flow to benefit advisors and clients.”

Writing covered calls on tech stocks produces steady revenue from premiums. Growth possibilities become limited should underlying stocks rocket past their call strike price. Nonetheless, covered calls have served money managers for decades. More recently, the strategy has permeated mainstream markets through various covered call ETFs.

Harvest leads this niche in Canada with an array of 16 equity income ETFs and some new fixed income offerings. Two of its products concentrate on tech, including the Harvest Tech Achievers Growth & Income ETF. This ETF boasts over $500 million in assets under management and an impressive track record approaching a decade. Its portfolio contains 20 positions across major tech players, AI specialists like NVIDIA, leading financial tech providers such as Intuit, and top cybersecurity names like CrowdStrike.

The fund writes covered calls on up to 33% of each holding to generate reliable income for monthly distributions. As Mr. Learmonth summarizes, “The overall approach aims to produce steady cash flow while retaining enough upside exposure to expanding tech stocks.” Even if the underlying stocks prove volatile, he highlights how this actually raises call premiums.

The Harvest ETF comes in three versions: currency hedged, non-hedged and USD. It has delivered an almost 15% annualized total return since inception alongside an 8%+ annual yield as of December 31, 2023. The fund pays a 12 cent monthly distribution, increased three times since 2019.

The paired Harvest Tech Achievers Enhanced Income ETF employs 25% leverage to amplify monthly income and growth potential. As Mr. Learmonth explains, “This ETF essentially just holds HTA, but uses moderate leverage to buy more of it.” He continues, “The leverage generates extra income from the options strategy and additional capital appreciation.”

Since launching in 2022, the Enhanced Income ETF has produced a 10.5% annualized yield via 13 cent monthly distributions, alongside 50%+ annualized returns through December 31, 2023. The leveraged approach brings added risk, but potentially greater rewards for those with higher risk tolerance.

The meteoric rise of prominent technology stocks in 2023 despite broader market turbulence reflects intensifying conviction in the sector’s immense disruptive capacity. However, even ardent tech bulls harbor some unease about inflated valuations and lofty investor enthusiasm possibly portending a dot-com era repeat. Nonetheless, technologists and futurists contend that comparisons to the early 2000s fundamentally misconstrue the current landscape.

Today’s tech juggernauts boast formidable competitive moats, robust balance sheets and substantial cash reserves. More importantly, seismic technological forces like artificial intelligence, augmented reality, quantum computing and Web 3.0 remain in their infancy. Their revolutionary potential has scarcely begun to permeate the consumer and enterprise worlds. Industry experts predict AI integration, metaverse proliferation and blockchain decentralization catalyzing transformation across industries over the next decade.

Consequently, while periodic pullbacks in richly-priced stocks seem probable, technology’s long-term outlook appears overwhelmingly positive. Of course, even steadfast optimism must reconcile with risk management principles, especially regarding concentrated tech exposure. This is where adept covered call strategies can prove judicious and propitious. As pioneered by Harvest’s suite of offerings, covered call ETFs furnish the growth upside of high-flying tech stocks alongside risk mitigation and income generation. Such vehicles aptly capture technology’s prospects while addressing the sector’s inherent volatility. In effect, they offer measured participation in what could become the most transformational decade humanity has yet witnessed. The years ahead will undoubtedly challenge that notion, but the premise underpinning tech’s upward ascent remains compelling to many investors.