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These innovation ETFs poised for growth

Emerge Ark disruptive innovation and Harvest Portfolios blockchain ETFs are long term bets on new technologies.

Investors fled to value stocks in February sending last year’s technology stars into a spin.

The sector has recovered, but a popular theme in the meantime has been whether this is a move away from growth stocks towards value stocks. Growth stocks benefitted from pandemic lockdowns and low interest rates, while value stocks are more attractive as conditions return to normal.

Here’s an update on two ETFs that stand to gain as the technological revolution continues. It is the second part of an article published last week that looked at opportunities emerging from the new space race.

One ETF is actively managed by Cathie Wood’s ARK Investment Management in New York. The other is passively managed by Harvest Portfolios Group in Oakville, Ont.

 Harvest Portfolios Blockchain Technologies ETF (TSX: HBLK) Closed Friday at $24.51.

Background: Harvest launched this ETF in 2018 to invest in  large cap technology companies and stand-alone blockchain companies. The holdings were designed to evolve with the industry.

Harvest Portfolios Group CIO Paul MacDonald says their Blockchain ETF evolves with the sector. Credit: Supplied photo

Performance:  The  ETF is up 54.54% year-to date and 207.14% in the past 52-weeks.

Holdings: The ETF holds 41 stocks. The top three are Square Inc., the e-commerce platform (7.9%), EPAM Systems Conduent Corp., which also designs e-commerce platforms (7.8%) and Docusign Inc. which creates online document management software (7.7%)  The top 10 holdings account for 59% of the fund.

Key metrics: The fund has an average market capitalization of US$137 billion with a dividend yield is 0.33% and a management fee is 0.65%. It has $48 million in assets.

Discussion: The fund was launched with 45% of its holdings in large cap names like Microsoft, IBM, Mastercard and Visa. The idea was to add stability as the sector evolved and then gradually reduce their weighting. This has gradually happened with the large caps falling to 25% as emerging names take the lead. Paul MacDonald, Harvest’s Chief Investment Officer says that as the sector matures “you move toward a much more focused, pure blockchain focus versus a balancing act.”  

 Emerge ARK Global Disruptive Innovation ETF (NE: EARK). Closed Friday at $22.69  

Background: This ETF is the Canadian version of the New York-traded Ark Innovation ETF.  It is actively managed by Cathie Wood and her team.

The fund invests in a global basket of companies that are focused on disruptive innovation. This includes technologically enabled new products or services that could potentially change the way the world works.

Cathie Wood and her team at Ark Investment Management actively manage their ETFs. Credit: Supplied photo

Performance:  The fund sold off in February but has recovered.  It is down 1.97% year-to-date, but up 40.76% in the past 12 months.

 Holdings: The fund is broadly diversified by sector, but geographically holds most of its holdings in the U.S. (79%).  Another 11% are in Asia and 9% in Europe. Canada’s Shopify is its 8th largest holding.   

 The top 10 account for almost half of the assets. None of them pay a cash dividend.  The top five holdings are Tesla (10.3%), telehealth provider Teledoc Health Inc. (6.1%) and entertainment streaming company Roku Inc.  (4.7%).

Key metrics:  The fund has $186 million in assets and typically holds between 35-50 stocks. It has a relatively high expense ratio of 0.80%,

Discussion: Some holdings overlap with Harvest, but it is broader offering a balanced way to take part in a number of converging themes, including blockchain.  It’s biggest holding is Tesla, so that one holding has a big influence on performance. Mega cap and large cap stocks make up 62% of the holdings. It benefits from its active management which makes it more nimble as conditions change. 

This is an edited version of article that appeared in the Internet Wealth Builder on July 5, 2021.  For information on how to reprint this article please view this page.



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