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More than $2 trillion has been spent on merger and acquisition (M&A) deals in 2016, and according to Money Morning Director of Tech & Venture Capital Michael A. Robinson, that M&A demand is providing some of the best investments on the market this year.
And deals in the technology sector have been some of the biggest. In fact, the top three tech deals of the last three months alone have totaled a combined $67.5 billion.
Before we get to one of the best investments of 2016 to play this $2 trillion trend, here's how tech has been moving markets this year.
The technology sector has been the driving force behind the Nasdaq Composite's record closes this year.
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Deal-making has been a key catalyst for tech stocks this year. In fact, three of the hottest M&A transactions of the past three months involved tech.
Those deals include Oracle Corp.'s (Nasdaq: ORCL) acquisition of NetSuite Inc. (NYSE: N) for $9.3 billion; SoftBank Group Corp.'s (OTCMKTS: SFTB) $32 billion purchase of UK chipmaker ARM Holdings Plc. (Nasdaq ADR: ARMH); and Microsoft Corp.'s (Nasdaq: MSFT) $26.2 billion acquisition of LinkedIn Corp. (NYSE: LNKD).
Global technology acquisitions thus far in 2016 have surpassed $400 billion, according to Dealogic.
That's up 27% year over year and means tech M&A is within reaching distance of the last year's all-time record.
"Simply put, this M&A tech frenzy won't go away any time soon," Robinson said. "It's totally unstoppable."
That's why Robinson has pinpointed this one ETF as one of the best investments to own in 2016. It plays that tech M&A boom better than any other investment…
One of the Best Investments to Play the Tech M&A Boom Now
According to Robinson, one of the best investments to make now is the Technology Select SPDR ETF (NYSE: XLK).
It is not strictly M&A focused, but it covers the entire tech spectrum and greatly benefits from the ongoing deal-making in the tech space.
"M&A is great news for buyers, sellers – and investors," Robinson explains. "It's a clear path to growth for many firms, especially those that do it right. And XLK offers us a great way to play this trend. At the same time, we also profit from the fast growth and high profit margins the tech industry provides."
Additionally, since XLK avoids focusing on just one tech area, it provides diversification and reduces the risk that comes from owning a single company.
The fund is composed of roughly 80 tech companies that are involved in hardware, software, semiconductor services, IT, Internet services, cloud computing, and telecommunications.
XLK boasts a market cap of $16.17 billion. At $47.12, shares are up 10.12% year to date. That's more than double the Nasdaq's 4.40% year-to-date gain. Three- and five-year returns of 48.11% and 95.35% are more telling of the kind of long-term gains investors can expect from XLK.
Robinson says XLK is poised to benefit from both the tech sector's organic and M&A growth for several years to come. It also "offers a stable, cost-effective vehicle that's tough to beat."
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- State Street Global Advisor: Technology Select Sector SPDR Fund