‘Frontier Tech’ ETF Debuts

Innovator ETFs teams with Loup Ventures to launch an ETF with an innovative take on the tech sector.

Today Innovator Capital Management rolled out a fund that targets companies developing cutting-edge technologies that are expected to become increasingly important. The Innovator Loup Frontier Tech ETF (LOUP) covers companies from emerging and developing markets with at least $250 million and less than $250 billion in market capitalization.

The fund lists on the NYSE Arca with an expense ratio of 0.70%.

“We believe that there’s this great technology wave that’s coming and it can take form in different ways,” said Bruce Bond, Innovator’s CEO and co-founder. “I think some of these other funds you’re seeing out there don’t really combine all the different facets of how it can show up.”

Bond notes that the fund is research-based and pure-play in nature, and points out that it is likely to have low overlap with what investors already own.

“We think maybe the greatest growth potential is in some of these emerging technologies,” he added. “I think what we will see in this is people maybe paring back their exposure to some of the large tech indexes and putting some in here to gain exposure to emerging tech.”

Methodology

Innovator teamed up with Loup Ventures, a research and venture capital firm targeting frontier technology, to create LOUP. The fund’s underlying index covers a wide range of subthemes, including artificial intelligence, consumer perception, robotics, autonomous vehicles and virtual or augmented reality. Companies included in the index must generate at least half of their revenues from one of these areas or exhibit significant revenue or expenditure growth in one of them.

The index is extremely growth-oriented. It ranks eligible companies based on growth in revenue, earnings per share, free cash flow and quarterly revenue acceleration to form a composite score. The 30 highest-scoring companies are included in the index, which equal-weights the 25 lowest-ranked components with an adjustment for conviction. The top five components are given weightings that are 50% more than those of the other components.

Bond notes that pretty much every investor has access to the FAANG stocks, but those stocks have already achieved much of their growth potential. The $250 billion limit on market capitalization screens out those largest companies to make room for smaller firms with a lot more growth ahead of them.

“For people who are looking at this space and really believe it has tremendous growth potential, what they want exposure to are the companies that are going to grow because of the space,” Bond said. ”We believe the investors that invest in frontier technology tend to be growth investors. They’re comfortable with a little more risk, and they want something that has more growth potential.”

Contact Heather Bell at [email protected]