Direxion targets ambitious equities with ‘Moonshot’ ETF

Nov 17th, 2020 | By | Category: Equities

Direxion has expanded its suite of long-term strategic beta ETFs with a new fund that targets highly ambitious and disruptive US equities.

Moonshot ETF Direxion

The ETF targets ambitious and disruptive ‘Moonshot’ companies.

The Direxion Moonshot Innovators ETF (MOON US) has listed on NYSE Arca and comes with an expense ratio of 0.65% and seed capital of $5 million.

The fund invests in mid and small-cap firms that operate in disruptive industries and are distinguishable by their innovative cultures, clearly defined ‘missions’, and significant allocations to research and development.

David Mazza, Managing Director at Direxion, commented, “Today’s world is transforming faster than ever before, with many investors wanting exposure to companies that are part of that transformation. MOON offers exposure to the most innovative companies at the forefront of radical themes that are changing the way tomorrow’s world works today.”

The underlying reference is the S&P Kensho Moonshots Index which has been created by index operator S&P Dow Jones Indices in collaboration with Kensho Technologies, a provider of next-generation analytics, machine learning, and data visualization systems.

The starting universe for stock selection consists of US-listed equities, including American Depository Receipts, with a minimum market capitalization of $100m and an average daily trading value greater than $1m. Mega-cap firms, defined as those whose market caps sit in the top 10% of the entire US equity universe, are excluded.

Each stock is assigned what S&PDJI/Kensho call a Composite Innovation Score which, in turn, is based on an Allocation Score, defined as the ratio of R&D expenses to revenue compared to companies in the same industry, and a Sentiment Score, which reviews the frequency of innovative keywords in a firm’s most recent annual filings.

The methodology selects the 50 stocks with the highest Composite Innovation Scores; however, to target the disruptive technology theme, eligible companies must also be a constituent in at least one S&P Kensho New Economy Index or be classified within the Wireless Telecommunication or Internet Services & Infrastructure GICS sub-industries.

Kensho defines so-called ‘new economy’ companies as those that are technologically enabled and are driving the ‘Fourth Industrial Revolution’. This term covers a wide range of disruptive industries including blockchain, alternative finance, future payments, electric and autonomous vehicles, wearables, robotics, cybersecurity, 3D printing, genetic engineering, drones, clean energy, smart grids, space exploration, nanotechnology, and virtual reality, among others.

Additionally, to ensure diversification, the index caps the maximum amount of constituents from any GICS sector at ten.

Index constituents are first equally weighted but are then adjusted to account for liquidity, industry group, and diversification constraints. The index is reconstituted annually in June and rebalanced semi-annually.

Over three quarters (77.3%) of the index is currently allocated to US-domiciled firms. China accounts for 11.2%, while the remaining 11.5% is spread evenly across a further six countries.

The index is relatively concentrated at the sector level with information technology (34.1%), industrials (22.7%), and consumer discretionary (22.4%) stocks accounting for the majority of the exposure with lesser allocations to health care (12.9%) and communication services (7.9%).

Shanghai-based NIO and Cincinnati-based Workhorse Group, both manufacturers of electric vehicles, hold significant weights of 8.7% and 6.5%, respectively, while NY-based Plug Power, a developer of hydrogen fuel cell batteries, accounts for 5.4%. The remaining constituents generally hold individual weights between 1% and 3%.

Investors that are interested in the themes of disruptive technologies and the so-called new economy may additionally wish to investigate a suite of ETFs linked to S&P Kensho New Economy indices offered by State Street Global Advisors (SSGA). SSGA initially rolled out three ETFs targeting the sub-themes of intelligent structures, smart mobility, and future security, and later expanded the suite with a further three ETFs linked to new economies, clean power, and final frontiers.

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