Market Overview

To The Moon For Innovation

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To The Moon For Innovation

The combination of innovative investing and exchange traded funds is a match made in heaven and issuers know as much.

What Happened

Extending what's recently been a brisk pace of ETF launches while adding to its burgeoning lineup of non-leveraged fare, Direxion introduced the Direxion Moonshot Innovators ETF (NYSE: MOON) on Thursday.

Aptly tickered, MOON tracks the S&P Kensho Moonshots Index. However, this rookie ETF is not a play on space travel or exploration. Rather, it's a fresh spin on investing in early stage, disruptive, innovative companies.

MOON “offers exposure to the 50 most innovate US companies at the forefront of changing our lives today, and tomorrow, by identifying the companies both pursuing innovation, and having the potential to disrupt existing technologies and/or industries,” according to Direxion. “These 50 companies selected for inclusion are deemed to have the highest “early-stage composite innovation scores.”

Why It's Important

MOON's roster includes themes such as smart transportation, clean power, cloud computing and more. Importantly, the new ETF isn't just a hodgepodge of innovative names.

Components are scored based on research and development expenditures to revenue relative to rivals. Additionally, MOON uses an innovation sentiment score that reviews “a company’s regulatory filings for the previous 12 months for the use of words related to innovation,” according to Direxion.

An added benefit for investors looking to de-FAANG or decrease exposure to mega caps is MOON's market cap limit.

“The S&P Kensho Moonshots Index excludes the mega-cap tech names, instead focusing on the next generation of innovators (90% of constituents have a market capitalization of less than USD 10 billion); it is also equal weighted, limiting concentration risk,” according to S&P Dow Jones Indices. “While the mega-cap tech companies are often considered the bellwethers of innovation, it is instructive to note that 36% of constituents of the S&P Kensho Moonshots Index outperformed the average returns of the FAANGs since the market bottom on March 23, 2020.”

What's Next

Not surprisingly, MOON is technology heavy as that sector represents over a third of the new ETF's weight, but it taps into the industrial side of the fourth industrial revolution with a more than 25% weight to the industrial sector.

Seven countries are represented in the fund with the U.S. and China combining for over 88%. The bulk of the China exposure is derived via an 8.72% weight to Nio (NYSE: NIO).

MOON charges 0.65% per year, or $65 on a $10,000 investment.

 

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