Exchange-traded funds (ETFs) with thematic strategies have become popular among retail investors. A number of these funds mainly concentrate on disruptive trends, which "offer a revolutionary change in the conduct of processes or operations." Today, we introduce two such funds that provide a diversified way to invest in emerging trends.
Developments in technology, finance, health care, demographics and global resources usually get significant consumer and investor interest. According to research led by Maximilian Palmié of the University of Vaasa Finland, "disruptive innovation" is "any innovation that shakes up an industry and substantially changes its competitive patterns."
Recent analysis by GAM Investments suggests:
"the next phase of adoption within disruptive technologies involves some or all of the Internet of Things, 5G, data and AI. These are the drivers of what we believe will deliver the biggest opportunities over the next 5-10 years.”
Given the increase in the number of electric vehicles (EVs), McKinsey & Company regards upcoming technological developments in battery storage systems as a disruptor.
With that information, here are two funds to consider.
1. ProShares MSCI Transformational Changes ETF
Current Price: $44.29
52-Week Range: $36.84 - $47.47
Expense Ratio: 0.45% per year
The ProShares MSCI Transformational Changes ETF (NYSE:ANEW) gives access to firms that could benefit from trends that gather pace after the pandemic. Funds are currently allocated into four themes: the future of work (27.98%), genomics and tele-health (23.96%), digital consumer (22.16%) and food revolution (25.89%).
ANEW, which tracks the MSCI Global Transformational Changes Index, has 151 holdings. US-based businesses comprise around 77% of net assets of $42 million. The rest come from China (8.85%), Switzerland (3.85%), Germany (2.43%) and Japan (1.75%), among others.
In terms of sector allocation, health care (29.01%) leads, followed by information technology (26.28%), communication services (16.64%) and materials (11.41%). No stock has a weighting larger than 2.55%. In other words, price changes in a given company would not be enough to make a significant difference in the price of the fund.
Tech giants Microsoft (NASDAQ:MSFT) and Google’s Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) lead the list of businesses in the ETF's future of work group.
Pharma group Johnson & Johnson (NYSE:JNJ) and global medical device manufacturer Medtronic (NYSE:MDT) have the highest weighting in the genomics and tele-health group.
Within the digital consumer segment, video game developer Activision Blizzard (NASDAQ:ATVI) and streaming leader Netflix (NASDAQ:NFLX) hold the first two spots.
Finally, the world's largest producer of farm equipment Deere (NYSE:DE) and agricultural, chemical and seed company Corteva (NYSE:CTVA) lead in the food revolution segment.
Since the start of the year, ANEW has returned more than 6%. Trailing P/E and P/B ratios stand at 53.57 and 6.48, respectively. It is a young and small fund without much trading history. However, we like the range of industries and companies in the fund. Potential investors could consider investing around $42 or below.
2. Innovator Loup Frontier Tech ETF
Current Price: $52.91
52-Week Range: $25.00 - $64.33
Expense Ratio: 0.7% per year
The Innovator Loup Frontier Tech (NYSE:LOUP) invests in companies that are leading developments, especially in artificial intelligence, robotics, autonomous vehicles, computer perception and virtual reality. Fund managers highlight the names in the fund, which is balanced monthly. They are disruptive companies likely to influence the future of technology.
LOUP, which tracks the returns of the Loup Frontier Tech Index, currently has 30 holdings. It started trading in July 2018 and funds under management are close to $94 million.
IT (71.08%), industrials (12.42%), consumer discretionary (8.67%) and communication services (4.88%) are the main sectors represented in the fund. At present, about 41% of the fund is in the top 10 stocks.
Japanese engineering group Yaskawa Electric (OTC:YASKY); mobile commerce platform Affirm (NASDAQ:AFRM); China-based streaming platform operator Huya (NYSE:HUYA); Chinese-language Internet search provider Baidu (NASDAQ:BIDU), which has also been investing heavily in AI technology; legacy auto-maker Ford Motor Company (NYSE:F), which is putting increased resources into the EV space; and Austria-based semiconductor manufacturer Ams AG (SIX:AMS) are among the leading names in the roster.
About 53% of the companies come from the US, followed by Japan (14.12%), China (11.3%), Austria (4.34%), Taiwan (3.78%) and others. The fund is balanced monthly.
LOUP is up 7% in the past year and hit an all-time high in mid-February. Those investors that want global exposure might consider investing around $50.