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Active vs. passive management debate persists. TrueMark makes case for actively managed ETFs focusing on concentrated portfolios.

EXCLUSIVE: TrueMark Investment CEO Reveals Strategy To Beat Markets With Actively Managed ETFs

Franklin Intelligent Machines ETF

The debate over active and passive management strategies has weathered the test of time.
The passive approach, typified by following broad market indices like the S&amp;P 500, has its advocates, especially given its cost efficiency and simplicity. However, there&#8217;s a growing interest in the potential of actively managed funds <a href="https://www.benzinga.com/topic/etfs">to outperform the market. </a>
Despite the skepticism often surrounding active management—fueled by studies like the one from S&amp;P Dow Jones Indices, which highlighted that more than 92% of U.S. large-cap funds failed to beat the S&amp;P 500 over a 15-year period — TrueMark Investment is making a compelling case for its model. 
The investment firm offers actively managed ETFs, branded as Trueshares, focusing on sectors of the modern economy where they believe a manager&#8217;s in-depth knowledge can significantly benefit investors.
In an exclusive chat with Benzinga, TrueMark Investment&#8217;s CEO Michael Loukas highlighted that their ETFs are &#8216;subadvised.&#8217; This partnership model allows TrueMark to tap into the expertise of industry experts to manage the portfolios. By delving into the nuances of a category, they aim to deliver superior returns, or &#8216;alpha&#8217;, to investors.
<h2 class="wp-block-heading">&#8216;You Can&#8217;t Outperform The Market If You Own The Market&#8217;</h2>
A foundational belief at TrueMark is that genuine market outperformance requires a departure from the market&#8217;s broad composition. 
&#8220;You can&#8217;t outperform the market if you own the market,&#8221; Loukas asserted. This philosophy is channelled through the firm&#8217;s strategy of maintaining high-conviction, concentrated portfolios.
A prime example is the TrueShares Technology, AI &amp; Deep Learning ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/LRNZ#NYSE">LRNZ</a>), which contains only 21 carefully selected stocks within the artificial intelligence industry. 
The rationale behind such a concentrated approach is that it embodies the depth of conviction typically seen in institutional investment vehicles like hedge funds. &#8220;High conviction is essential, especially in sectors where we see a &#8216;winner takes all&#8217; dynamic,&#8221; Loukas affirmed. 
In these scenarios, TrueMark&#8217;s strategy involves investing in a few companies poised to dominate their segment, considered as the &#8216;category killers&#8217;, and then capitalizing on the &#8216;lead horses&#8217; to drive returns.
&#8220;We do own NVIDIA Corp. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/NVDA#NASDAQ">NVDA</a>) and Advanced Micro Devices Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/AMD#NASDAQ">AMD</a>), but we don&#8217;t own all the mega caps,&#8221; Loukas said regarding the composition of the TrueShares Technology, AI &amp; Deep Learning ETF.
Loukas highlighted the tech sector&#8217;s immense potential and the importance of discernment in selecting investments. &#8220;While the benefits of AI are widespread, a strong business model is crucial for an investment to be sound,&#8221; he said.
<h2 class="wp-block-heading">Top-Performing AI-Related Exchange Traded Funds </h2>
In the realm of AI-related ETFs, TrueMark&#8217;s offering has distinguished itself with outstanding returns. 
Over the past six months, the TrueShares Technology, AI &amp; Deep Learning ETF secured a second place in its category, delivering a robust 20.6% return since early October. This performance places it just behind the Roundhill Generative AI and Technology ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/CHAT#NYSE">CHAT</a>), which led with a 22% increase.
On a one-year horizon, the TrueShares Technology, AI &amp; Deep Learning ETF maintained its second-place standing with a remarkable 41% return, trailing slightly behind the Global X Artificial Intelligence &amp; Technology ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/AIQ#NYSE">AIQ</a>), which saw a 43.7% increase.
While it&#8217;s essential to remember that past performance is not necessarily indicative of future results, the current success of the TrueShares Technology, AI &amp; Deep Learning ETF offers a compelling testament to the potential of TrueMark&#8217;s focused, high-conviction investment strategy.
<figure class="wp-block-table is-style-stripes"> 
<table>
<thead>
<tr>
<th>ETF</th>
<th>6-Month Return</th>
<th>1-Year Return</th>
</tr>
</thead>
<tbody>
<tr>
<td>Roundhill Generative Al &amp; Technology ETF </td>
<td>22.38%</td>
<td>&#8211;</td>
</tr>
<tr>
<td>TrueShares Technology, Al &amp; Deep Learning ETF</td>
<td>21.02%</td>
<td>41.02%</td>
</tr>
<tr>
<td>Franklin Intelligent Machines ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IQM#NYSE">IQM</a>)</td>
<td>20.91%</td>
<td>37.05%</td>
</tr>
<tr>
<td>ROBO Global Artificial Intelligence ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/THNQ#NYSE">THNQ</a>)</td>
<td>19.31%</td>
<td>36.75%</td>
</tr>
<tr>
<td>Global X Robotics &amp; Artificial Intelligence ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BOTZ#NYSE">BOTZ</a>)</td>
<td>19.21%</td>
<td>29.80%</td>
</tr>
<tr>
<td>VanEck Robotics ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IBOT#NYSE">IBOT</a>)</td>
<td>15.99%</td>
<td>&#8211;</td>
</tr>
<tr>
<td>Global X Artificial Intelligence &amp; Technology ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/AIQ#NYSE">AIQ</a>)</td>
<td>15.17%</td>
<td>43.72%</td>
</tr>
<tr>
<td>WisdomTree Artificial Intelligence and Innovation Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/WTAI#NYSE">WTAI</a>)</td>
<td>10.64%</td>
<td>20.61%</td>
</tr>
<tr>
<td>First Trust Nasdaq Artificial Intelligence ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ROBT#NYSE">ROBT</a>)</td>
<td>5.18%</td>
<td>6.69%</td>
</tr>
<tr>
<td>iShares Robotics and Artificial Intelligence Multisector ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IRBO#NYSE">IRBO</a>)</td>
<td>4.26%</td>
<td>9.93%</td>
</tr>
</tbody>
</table>
<figcaption class="wp-element-caption">Source: TradingView; data as of Mar. 5, 2024</figcaption></figure>
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What comes to mind when you think of niche stock?



For some, it is one that flies under the radar of most investors. It could be a stock with little or no analyst coverage. It could be a company with technology that meets the needs of a smaller total addressable market (TAM).&nbsp;



In fact, Cambridge Dictionary defines <a href="https://dictionary.cambridge.org/dictionary/english/niche">niche</a> as &ldquo;a job or position that is very suitable for someone, especially one that they like.&rdquo;



The following three niche <a href="https://investorplace.com/industries/technology/">tech stocks</a> to buy are from the portfolio holdings of tech ETFs that specialize in niche products or services. For example, cloud-computing ETFs would not typically be considered as a niche businesses. AgTech ETFs could be.&nbsp;



So, let&rsquo;s examine three tech stocks to buy that investors won&rsquo;t likely find in some of the larger tech ETFs.&nbsp;



<h2>Sotera Health Company (SHC)</h2>


<div><img width="300" height="169" src="https://investorplace.com/wp-content/uploads/2021/11/shutterstock_1667119063-300x169.png" alt="Pipette adding fluid to one of several test tubes; biotech NVTA Stock"><div>Source: motorolka / Shutterstock.com</div></div>


Sotera Health Company (NASDAQ:<a href="https://investorplace.com/stock-quotes/shc-stock-quote/">SHC</a>) is the <a href="https://www.ishares.com/us/products/326601/ishares-emergent-food-and-agtech-multisector-etf/">sixth-smallest</a> holding of the iShares Emergent Food and AgTech Multisector ETF (NASDAQ:<a href="https://investorplace.com/stock-quotes/iveg-stock-quote/">IVEG</a>). The ETF invests in U.S. and non-U.S. companies that will benefit from creating or using agricultural technologies.



Sotera&rsquo;s <a href="https://soterahealth.com/about/">three businesses</a> of Sterigenics, Nordion, and Nelson Labs provide sterilization services, lab testing, and advisory services to healthcare companies. It has more than 5,800 customers in 50+ countries worldwide.



The downside? Most of the company&rsquo;s proprietary technology is not patented. However, its sterilization work is very sensitive. For example, Nordion produces and sells Cobalt-60 (Co-60), a radioactive isotope used in radiation sterilization. It decays naturally at a rate of approximately 12% annually.



Also, the product undergoes quality assurance testing and is shipped in proprietary lead and steel containers. This is a big deal. Specifically, we&rsquo;re talking about radioactive materials that must be treated with utmost care.&nbsp;



And, in Q3 of 2023, its <a href="https://www.sec.gov/Archives/edgar/data/1822479/000182247923000059/november12023-ex991.htm">revenues increased</a> by 6% year over year (YOY) to $263 million. Additionally, its EBITDA rose by 7% to $134 million, making the 51% adjusted EBITDA margin is attractive.&nbsp;



<h2>SiTime Corp. (SITM)</h2>


<div><img width="300" height="169" src="https://investorplace.com/wp-content/uploads/2021/07/sitime-sitm-stock-1600-300x169.jpg" alt="SiTime Corporation headquarters campus in Silicon Valley"><div>Source: Michael Vi / Shutterstock.com</div></div>


SiTime Corp. (NASDAQ:<a href="https://investorplace.com/stock-quotes/sitm-stock-quote/">SITM</a>) is one of the smallest holdings in the iShares Future Cloud 5G and Tech ETF (NYSEARCA:<a href="https://investorplace.com/stock-quotes/idat-stock-quote/">IDAT</a>). The latter is a fund <a href="https://www.ishares.com/us/products/307350/ishares-future-cloud-5g-and-tech-etf/">dedicated</a> to stocks that could benefit from providing products and services for cloud computing and 5G.



Also, SiTime&rsquo;s market capitalization of $2.3 billion is just 11% of the ETF&rsquo;s average market cap of $21.6 billion. 



Impressively, SiTime participates in the <a href="https://investor.sitime.com/?_gl=1&#x2A;199xd73&#x2A;_ga&#x2A;MjA0OTE0NTYwNS4xNzAxODA1NDM2&#x2A;_ga_3D908EQ7KW&#x2A;MTcwMTgwNTQzNS4xLjAuMTcwMTgwNTQzOS41Ni4wLjA.&amp;_ga=2.146740660.1636586583.1701805436-2049145605.1701805436">$8 billion</a> global timing market. The company&rsquo;s all-silicon timing systems solutions are used for a variety of electronics devices. Those include communications, automotive, industrial, aerospace, mobile, Internet of Things (IoT), and other industries requiring high-performance timing solutions. 



<a href="https://www.engineeringsolutions.philips.com/looking-expertise/mems-micro-devices/mems-micro-devices-applications/#:~:text=Some%20examples%20of%20current%20MEMS,manufactured%20in%20high%20commercial%20volumes.">Examples</a> of their use include airbag sensors, inkjet printer heads, optical switches, blood pressure sensors, and many other mass-produced products.&nbsp;The company sells its precision timing products to distributors, with its top three distributors accounting for <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1451809/000095017023004647/sitm-20221231.htm#item_1_business">70%</a> of its revenue in 2022. Those, in turn, sell them to the end user &ndash; the largest being Apple (NASDAQ:<a href="https://investorplace.com/stock-quotes/aapl-stock-quote/">AAPL</a>).&nbsp;&nbsp;



Word to the wise. SiTime is not profitable on a GAAP basis at the moment. However, it did generate a small non-GAAP profit of $1.4 million in Q3 2023 on revenue of $35.5 million.&nbsp;Yet, considering the global cloud computing market estimated to be over <a href="https://www.cloudzero.com/blog/cloud-computing-market-size/#:~:text=1.,to%20%24446.51%20billion%20in%202022.">$500 billion</a>, the $8 billion market in which SiTime participates is truly niche.



<h2>Constellation Software (CNSWF)</h2>


<div><img width="300" height="169" src="https://investorplace.com/wp-content/uploads/2019/07/stars1600-300x169.jpg" alt=""><div>Source: Shutterstock</div></div>


Constellation Software (OTCMKTS:<a href="https://investorplace.com/stock-quotes/cnswf-stock-quote/">CNSWF</a>) is the 14th-largest <a href="https://www.morningstar.com/etfs/bats/iqm/portfolio">holding</a> of the Franklin Intelligent Machines ETF (BATS:<a href="https://investorplace.com/stock-quotes/iqm-stock-quote/">IQM</a>). It is an actively managed <a href="https://www.franklintempleton.com/investments/options/exchange-traded-funds/products/29098/SINGLCLASS/franklin-intelligent-machines-etf/IQM">fund</a> investing in disruptive business models focused on machine learning and automation.&nbsp;



Like SiTime, Constellation Software is a niche business model. It&rsquo;s a serial acquirer that the Economist recently called the <a href="https://www.economist.com/business/2023/11/30/meet-constellation-software-techs-berkshire-hathaway">tech version</a> of Berkshire Hathaway (NYSE:<a href="https://investorplace.com/stock-quotes/brk-b-stock-quote/">BRK-B</a>).



The company was created by Toronto venture capitalist Mark Leonard in <a href="https://www.csisoftware.com/investor-relations/board-of-directors">1995</a>. His intention was to build <a href="https://www.csisoftware.com/overview">verticals</a> of software businesses in various industries through mergers, acquisitions, and organic growth.&nbsp;&nbsp;



Specifically, Constellation had&nbsp; <a href="https://www.csisoftware.com/docs/default-source/investor-relations/statutory-filings/constellation-software-cons-q108-v13-final.pdf">$270 million</a> in total assets in March 2008. And as of Sept. 30, CNSWF stood just over <a href="https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q3-2023---final.pdf?sfvrsn=11641f46_3/%20CSI---Press-Release-Q3-2023---Final%20.pdf">$10.0 billion</a>. The company&rsquo;s revenue through the first nine months were $6.1 billion, 27% higher than a year ago, with 6% organic growth, with the rest from acquisitions. Its free cash flow over the first nine months was $835 million, 48% higher than a year ago, suggesting it will generate close to $2 billion in 2023.&nbsp;&nbsp;&nbsp;



Since Constellation went public in <a href="https://www.fool.ca/2020/11/09/this-stock-could-have-made-you-a-millionaire/">May 2006</a>, its shares have appreciated nearly 12,000%. Up 55% in 2023 and 257% over the past five years, it continues to deliver on its M&amp;A.



On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com<a href="https://investorplace.com/corporate/investorplace-publishing-guidelines/"> Publishing Guidelines</a>.
<div>Will Ashworth has written about investments full-time since 2008. Publications where he&rsquo;s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.</div><h3>More From InvestorPlace</h3>
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The post <a href="https://investorplace.com/2023/12/3-niche-tech-stocks-with-untapped-potential/">3 Niche Tech Stocks With Untapped Potential</a> appeared first on <a href="https://investorplace.com">InvestorPlace</a>.