Innovation is a hot commodity in today’s market.
Direxion came up with this idea last November when it launched its Moonshot Innovators ETF (MOON), a fund that, according to its website, aims to give investors “exposure to the 50 most innovative US companies”.
MOON is up 59% since its November 12th launch and currently has the largest weightings in Vuzix, MicroVision, Tenable Holdings, Fuelcell Energy and Nano Dimension.
Direxion reviews companies in two ways: how much they spend on research and development relative to their sales compared to industry peers, and how often they use terms related to innovation in business filings compared to their peers.
This helps the company “identify a history of innovation,” Direxion’s product director David Mazza told CNBC’s “ETF Edge” this week.
“When we think of Moonshot innovations, it is not just based on finding the nearest meme inventory,” he said in an interview on Monday. “Historically, of course, Amazon, Tesla, and Apple would all have been part of the portfolio, but we purposely only focused on small to medium-sized businesses.”
Currently, around 40% of MOON’s portfolio is in small-cap companies, 30% in micro-cap names, and the other 30% in mid-cap companies, Mazza said.
The largest subtopics represented in MOON are genetic engineering with more than 19%, cybersecurity with almost 17%, clean technology with almost 10%, digital communities with almost 8% and drones with around 6%.
“These are names some people may not be familiar with, but they do really exciting things … from companies that work with smart glasses for telemedicine and warehouse use to MicroVision, which focuses on miniature lasers, the be used in 3D displays. “said Mazza.
Another holding company, ImmunityBio, offers tailored cancer and disease treatments based on individuals’ personal health profiles, he said.
“These are challenges that companies are facing today that will change the world, be it next year, five or ten years from now,” he said. “”[They’re] All in the very, very early stage of their cycle, their profit cycle, and now it would be time to think about adding some of these names and adding ETFs like this one so you can still focus on growing, but do it simply in a different way than just the mega-cap growers. “
The Covid-19 adapted economy could give innovators even more runway, said Tom Lydon, CEO of ETF Trends, in the same “ETF Edge” interview.
“The Covid situation has taught us that growth and innovation are very rapid,” he said. “It’s almost accelerated so you want to make sure you have a stake in these innovative companies to future-proof your portfolio, if not you, at least your children and grandchildren.”
MOON finished trading 1% on Thursday.
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