Not just ‘finding the next meme stock’: Moonshot Innovators ETF manager breaks down fund’s strategy

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Innovation is a hot commodity in today’s market.

Direxion bet big on that idea last November when it launched its Moonshot Innovators ETF (MOON), a fund that aims to give investors “exposure to the 50 most innovative US companies,” according to its website.

MOON is up 59% since its Nov. 12 launch and currently has its largest weightings in Vuzix, MicroVision, Tenable Holdings, Fuelcell Energy and Nano Dimension.

Direxion screens companies in two ways: how much they spend on research and development relative to their sales versus industry peers, and how often they use terms related to innovation in corporate filings versus their peers.

That helps the firm “identify a history of innovation,” David Mazza, Direxion’s head of product, told CNBC’s “ETF Edge” this week.

“When we think about moonshot innovation, it’s not just based off of finding the next meme stock,” he said in a Monday interview. “Now, historically, of course Amazon, Tesla, Apple would all have been part of the portfolio, but we purposely focused only on small to mid-cap companies.”

As it stands, roughly 40% of MOON’s portfolio is in small-cap companies, 30% is in micro-cap names and the other 30% is mid-cap, Mazza said.

The largest sub-themes represented in MOON are genetic engineering at more than 19%, cybersecurity at nearly 17%, clean technology at almost 10%, digital communities at just under 8% and drones at about 6%.

“These are names that some folks might not be familiar with, but they’re doing really exciting things, … everything from companies working with smart glasses for telemedicine and warehouse use to MicroVision focusing on miniature lasers that are used in 3D displays,” Mazza said.

Another holding, ImmunityBio, offers customized cancer and disease treatment based on individuals’ personal health profiles, he said.

“These are challenges that companies are tackling today that are going to change the world, whether in the next year, five years, 10 years,” he said. “[They’re] all at the very, very early stage of their cycle, of their profit cycle, and now would be the time to begin to think about adding some of these names, adding ETFs like this so you can still focus on growth, but just do so in a different way than just the mega-cap growers.”

The Covid-19-adjusted economy could offer even more runway for innovators, ETF Trends CEO Tom Lydon said in the same “ETF Edge” interview.

“What the Covid situation taught us is growth and innovation happens really quickly,” he said. “It’s almost been sped up, so, you want to make sure you have a portion in these innovative companies to future-proof your portfolio, if not for you, at least for your kids and your grandkids.”

MOON ended trading down 1% on Thursday.

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