XT - XT: Exponential Isn't Working

2023-11-10 14:33:21 ET

Summary

• iShares Exponential Technologies ETF offers exposure to companies driving technological advances across various sectors globally.
• The XT ETF provides diversification with over 190 holdings, minimizing specific company risk.
• The fund invests in both developed and emerging markets, potentially benefiting from global growth trends.

There was a time when the word "exponential" was all anyone needed to say about a tech company for investors to pour money into a stock. Those days are gone, largely because of macro concerns and the cost of capital. Still, it's worth keeping an eye on funds that try to get exposure to "hypergrowth" tech stocks. That's where the iShares Exponential Technologies ETF ( XT ) comes into play.

Unveiling the Investment Premise

XT's investment strategy is rooted in innovation and exponential technologies. These technologies are poised to disrupt traditional industries and create new markets, potentially resulting in significant economic benefits.

Pros

1. Innovation Exposure: The fund provides broad exposure to companies driving technological advances across various sectors globally.
2. Diversification: With over 190 holdings, the fund offers a substantial level of diversification, minimizing specific company risks.
3. Global Reach: The fund invests in both developed and emerging markets, potentially benefiting from global growth trends.

Cons

1. Volatility: Companies working on groundbreaking technologies can be subject to higher market volatility.

2. Risk of Failure: Not all "next big things" succeed. Some of the companies in the fund may fail to capitalize on their innovative technologies.

The fund was launched on March 19, 2015, and is traded on the Nasdaq exchange. The fund has a management fee of 0.46%, with net assets of over $3 billion. The fund's beta, a measure of its volatility relative to the market, is 1.06, and its standard deviation, a measure of its volatility, is 20.66%.

Assets under management ("AUM") growth has clearly been exponential. Performance not so much, however, as this peaked back in 2021 and has been languishing since.

Exploring the Top 5 Individual Holdings

Let's take a closer look at some of the main holdings within XT. These companies represent a significant portion of the fund's assets and play a crucial role in its performance.

1. Nvidia Corporation (NVDA): Nvidia is a leading manufacturer of graphics processing units (GPUs), which are critical for AI and machine learning applications.

2. Meta Platforms, Inc. Class A (META): Previously known as Facebook, Meta Platforms is a social media giant venturing into the metaverse, a virtual reality space where users can interact in a computer-generated environment.

3. Palantir Technologies Inc. Class A (PLTR): Palantir Technologies specializes in big data analytics. Its platforms are used by government and commercial organizations to manage, analyze, and secure their data.

4. MongoDB, Inc. Class A (MDB): MongoDB is a database platform that allows developers to build applications faster and handle diverse types of data.

5. SoFi Technologies, Inc. (SOFI): SoFi Technologies is an online personal finance company offering a range of lending and wealth management services.

Note, this is a very diversified fund, with the largest holding (Nvidia) at only a 1.41% position.

Sector Composition and Weightings

XT's portfolio spans various sectors, with a significant emphasis on the Information Technology sector, followed by Health Care and Industrials. Here's a breakdown of the fund's sector allocation:

1. Information Technology: 53.33%
2. Health Care: 17.05%
3. Industrials: 7.14%
4. Financials: 6.59%
5. Consumer Discretionary: 5.16%
6. Communication: 4.31%
7. Materials: 2.21%
8. Utilities: 2.09%
9. Real Estate: 1.46%
10. Consumer Staples: 0.39%

Comparative Analysis with Similar ETFs

When compared to similar ETFs, such as the ARK Innovation ETF ( ARKK ), XT has shown consistent outperformance. Although ARKK has had periods of outperformance, particularly during the pandemic-induced tech rally, XT has demonstrated strong leadership, particularly in turbulent market conditions. This consistency could be attributed to its diversified portfolio and exposure to a broad array of sectors and markets.

To Invest or Not to Invest: The Final Decision

Investing in the iShares Exponential Technologies ETF can be a strategic move for those looking to tap into the potential of exponential technologies. However, given the high volatility and inherent risks associated with investing in disruptive technologies, as well as where we are in the economic cycle, I wouldn't bet on iShares Exponential Technologies ETF here. Momentum isn't there, and Tech broadly, I believe, is vulnerable.

For further details see: