In Search Of Margin Expansion And Profitability? 2 ETFs For Growth Investors
Investing.com | Jul 19, 2021 05:15AM ET
The easing of monetary policy, especially since the start of the pandemic, has provided tailwinds for broader markets. Both the S&P 500 and NASDAQ 100 hit record highs earlier in July. As a result, there is growing concern that broader indices, as well as a large number of shares, have deviated from historical valuations.
Meanwhile, Fed Chair Powell recently said that despite worries over increasing inflationary pressures, the central bank is unlikely to change policy soon. Thus, analysts wonder whether investors' risk appetite could continue and valuations, especially for growth stocks, could rise in the second half of the year, too.
Growth stocks typically offer attractive opportunities for robust long-term returns, regardless of short-term choppiness in share prices. Investors are usually ready to pay a premium for continuous revenue growth, margin expansion and potential profitability.
Therefore, today we'll introduce two exchange-traded funds (ETFs) that might appeal to readers who expect more impressive performance from such growth businesses with disruptive business models.
1. ARK Next Generation Internet ETF/h2 - Current Price: $140.31
- 52-Week Range: $91.76 - $191.13
- Expense Ratio: 0.79% per year
The ARK Next Generation Internet ETF (NYSE:ARKW) is an actively-managed fund run by Cathie Wood's ARK Invest. We've written previously about a number of ARK funds (for example, here, here, and here).
ARKW provides exposure to innovative firms that focus on the Internet of Things (IoT), artificial intelligence (AI), big data analytics, social platforms, e-commerce as well as blockchain and cryptocurrencies. Mordor Intelligence suggests:
” IoT is enabling businesses across the globe to collect a tremendous amount of data from multiple sources. The role of Artificial Intelligence in IoT is to automatically identify patterns and also detect anomalies. The global Artificial Intelligence (AI) in the IoT market is expected to grow at a CAGR of 27.3% during the forecast period (2021-2026)."
The ETF, which typically invests in 35-50 companies, began trading in September 2014. The leading 10 stocks comprise more than 48% of net assets of $6.35 billion.
Tesla (NASDAQ:TSLA) has the highest slice with 10.48%. Therefore, large moves in TSLA stock are likely to have an impact on the fund. Next in line are Twitter (NYSE:TWTR), Shopify (NYSE:SHOP), Square (NYSE:SQ), and Teladoc (NYSE:TDOC).
Cryptocurrency enthusiasts would be interested to know that ARKW also invests in the Bitcoin Investment Trust (OTC:GBTC) and the crypto exchange platform Coinbase Global (NASDAQ:COIN). According to metrics from MarketsandMarkets Research:
“The cryptocurrency market size is expected to grow from USD 1.6 billion in 2021 to USD 2.2 billion by 2026, at a CAGR of 7.1%. Transparency or distributed ledger technology and growth in venture capital investments are the key factors driving the growth of the cryptocurrency market.”
Put another way, those investors who would like access to the potential growth in digital assets, especially Bitcoin, should do further due diligence on the fund.
Since the start of 2021, ARKW is down about 4%. However, over the past 12 months, it is up 50% and hit a record high in mid-February. Interested readers could regard the decline over the past several months as an opportunity to buy into the names in the fund.
2. VanEck Vectors Video Gaming and eSports ETF/h2 - Current Price: $68.24
- 52-Week Range: $52.71 - $81.39
- Dividend Yield: 0.12%
- Expense Ratio: 0.55% per year
The VanEck Vectors Video Gaming and eSports (NYSE:ESPO) gives access to firms that are part of the video game development, mobile gaming, e-sports and related hardware and software space. Since its inception in October 2018, assets have reached $773 million.
ESPO focuses on a high-growth theme. Recent research highlights, in 2021 "the global esports economy will generate revenues of $1.1 billion, a year-on-year growth of +15.7%. Most of these revenues (74.8%) will come from sponsorships and media rights, which will total $822.4 million, a +17.2% increase from last year. Consumer spending on tickets and merchandise will total $121.7 million.”
The ETF, which tracks the MVIS Global Video Gaming and eSports Index, has 26 holdings. More than 43% of the firms come from the US, followed by China (19.46%), Japan (18.00%), Taiwan (8.33%), South Korea (4.60%) and others. Communication services (70.3%), information technology (25.4%) and consumer discretionary (4.2%) are the three sectors in the ETF.
Close to 62% of the fund is in the top 10 stocks. Among the leading names in the roster are the chip heavyweights giants NVIDIA (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD); Chinese tech and entertainment stock Tencent (OTC:TCEHY); Singapore-headquartered Sea (NYSE:SE), whose platforms cover digital entertainment, e-commerce and financial services and gaming business Activision Blizzard (NASDAQ:ATVI), which develops and distributes interactive entertainment products and software.
Since the start of the year, the fund is down about 2.5%. However, over the past 52 weeks, ESPO returned close to 29% and, like ARKW, hit an all-time high in mid-February. Potential buy-and-hold investors could find value around these levels.
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