ETF Of The Week: Avoiding Future Losers

October 11, 2019

That's not to say the real estate and utilities sectors aren't uniquely exposed to risk from technological disruption; the retailpocalypse,” driven in part by a consumer shift to e-commerce, has hit the commercial real estate space hard.

Meanwhile, utilities have struggled to keep pace with consumer demand, as the latest PG&E debacle has shown. However, with technological disruption happening on an ongoing basis, wouldn't the threat have shown in up in these sectors' recent performance, however slight?

Stocks That Didn't Make The Cut

Looking more closely under the hood, we find some of the biggest and most commonly held large cap stocks do not appear in XOUT, including familiar names like Exxon Mobil, Walmart and Berkshire Hathaway.

 

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

 

Although the time period over which XOUT evaluates a company's financial data isn't immediately clear from the fund's prospectus, it is interesting that nine of the 10 excised stocks specifically listed in the fact sheet have positive returns, year to date. Some, like Walmart and Procter & Gamble, are even far outperforming the broader market.

 

Big Companies That Don't Appear In XOUT
Company YTD Performance
Berkshire Hathaway  1.95%
Procter & Gamble Co. 33.63%
Exxon Mobil Corp. -3.22%
AT&T 25.42%
Bank of America Corp. 11.74%
Verizon Communications Inc. 5.71%
Chevron Corp. 2.21%
Walt Disney Co. 18.68%
Wells Fargo & Co. 2.58%
Walmart 27.42%

Source: GraniteShares; data as of Sept. 30, 2019

 

Of course, a stock's current or recent performance matters less to XOUT's methodology than its potential for future returns to be disrupted by technological change. Again, exposure to disruption is the key criteria in deciding which stocks make it into the benchmark and which don't.

Yet even taking that into account, we find a few surprises among this list of excised names. Disney has made a high profile bet on its new streaming service, Disney+, while Walmart has rolled out an online grocery delivery platform like its rivals. Verizon and AT&T, meanwhile, are locked in a race to roll out the next-gen 5G network.

Rather than negative exposure to technological change, it seems these companies are at least trying to embrace it—or at least keep pace.

No Crystal Ball

Skepticism is healthy, but the truth is, we don't have a crystal ball any more than XOUT's advisor does. Perhaps these sectors and these companies truly are the ones most at risk to be turned on their head as technology continues to evolve at breakneck pace.

What matters more to the success of a fund like XOUT is whether investors buy into the secret sauce. And for that, only time will tell.

Contact Lara Crigger at [email protected]

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