MSFT - METV: Still Bullish As AI Steals The Tech Spotlight

2023-11-08 12:59:21 ET

Summary

• Microsoft surpasses Apple as the largest weight in the S&P 500, signaling the strength of the tech bull market.
• METV is designed to track the performance of the Metaverse and holds major tech stocks driving the S&P 500's gains.
• Despite its small size and concentration in tech-related industries, METV has performed well in 2023 and offers a favorable risk/reward play.
• I outline key price levels to watch heading into year-end.

Is the tech bull market back? Shares of Microsoft (MSFT) rallied to fresh all-time highs this week as it overtook Apple (AAPL) as the biggest S&P 500 weight. Both mega cap companies are large constituents in the Roundhill Ball Metaverse ETF (METV).

I reiterate my buy rating on the fund. I assert that prospective investors should not get hung up on the ETF's name/brand - it holds many of the major tech stocks that are helping to drive the S&P 500 to solid 2023 gains. With NVIDIA (NVDA) on deck later this month, earnings-related volatility is not done quite yet.

Metaverse Shakeup: MSFT Now Larger Than AAPL

For background and according to Seeking Alpha, METV invests in stocks of companies operating across information technology, software and services, IT services, data processing and outsourced services, internet merchant services, payment service providers and gateways, payment wallets, internet services and infrastructure, infrastructure services, networking services, technology hardware and equipment, and metaverse sectors.

Roundhill notes that METV is the first index globally designed to track the performance of the Metaverse. The Index consists of a tiered weight portfolio of globally listed companies that are actively involved in the Metaverse.

METV is not a large ETF, and its assets under management have stagnated from when I first covered the product back in August of 2022 and earlier this yea r. With $415 in AUM today, the dividend yield is also nothing to write home about at just five basis points on a trailing 12-month basis. The expense ratio is moderate at 0.59% while it is considered a risky fund based on its volatility metrics. Liquidity is moderate, however, with an average daily volume of more than 250k shares, and its median 30-day bid/ask spread can be high at times, averaging 10 basis points, so using limit orders during the trading day is prudent. But where METV shines is with its share-price momentum .

Digging into the portfolio, as you would expect, a sizable chunk of the allocation is considered large-cap growth. There is scant value exposure and very little allocated to small caps. Still, there is a significant portion considered mid-cap with plenty of blend exposure. The 46-holding portfolio, per Roundhill, is invested in Gaming Platform, Computing Components, Cloud Solutions, Social Network, and Other categories. Its price-to-earnings ratio is much better than when I last wrote on the ETF - down from near 25 to barely above 19, all while earnings growth has been robust.

METV: Portfolio & Factor Profiles

Of course, there isn't much diversification with METV nearly all of its allocation is in tech-related industries, though there are some non-TMT names. Investors should also consider how concentrated the fund is - more than half of the ETF's assets are invested in its top 10 holdings.

METV: Holdings Breakdown & Dividend Information

Seasonally, I took a look at the Invesco QQQ ETF (QQQ) since it and METV correlate quite highly now that we have about two and a half years of price data on METV to assess. Equity Clock notes that the mid-November through December stretch is rather bullish for tech-related equities, but mid-January through early March can be a trickier time. So, take this into consideration when timing buys and sells with METV.

QQQ Seasonality: Bullish Through Mid-January

The Technical Take

METV has been a big winner much of the year. Notice in the chart below that shares increased from under $7 to above $11 over the first seven months of 2023, but a tough correction then ensued once Q2 tech earnings began to hit the tape. Bullish in my view, though, is that the RSI momentum indicator at the top of the graph shows improving trends while price action over the last few weeks has been strong.

The ETF is now above its October peak and threatening to rise above the early September high in a breakout pattern. With a rising long-term 200-day moving average, I assert that the bulls are in control. Next resistance appears at the year-to-date zenith at $11.09 with another layer of resistance closer to $14. Long here with a stop under the May low is a favorable risk/reward play in my view. That is largely a reiteration of the long strategy I outlined earlier this year .

METV: Bullish Breakout Recently, Improving RSI Momentum

The Bottom Line

METV might have some branding issues now that AI is all the buzz, but its portfolio has performed well in 2023. With solid momentum and a valuation that is quite reasonable given the growth outlook, I reiterate my buy rating.

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