How Analysts Look at Trends to Invest in Stocks and ETFs

Some investment trends seem obvious — people are watching more streaming movies, consumers like shopping online, and more people are buying electric cars. So why don’t these ETFs always work?

ETFs serve as wrappers, so performance of an ETF will depend on its holdings. In many cases, ETFs hold stocks, so the key to understanding your ETF behavior is having a basic understanding of how stocks work. This note discusses how analysts look at stocks and why an ETF may not always immediately reflect the behavior you would think.

Analysis Often Starts With a Broader Set of Assumptions.

Typically, analysts start with broader assumptions that drives demand which ultimately drives revenue or top-line growth. For example, for streaming stocks we can assume that streaming demand is growing for several reasons: 1) more connected devices, faster internet with wider reach, 2) shift away from cable/satellite and shorter theatrical windows, and 3) rise in original content that makes streaming services more appealing. We can look at broader macro data e.g., consumer spending on streaming and video rental from the Bureau of Economic Analysis or streaming services market share from Nielsen.