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Go Digital With This New ETF (DAPP) From VanEck

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In order to capitalize on the ongoing digital transformation, VanEck launched VanEck Vectors Digital Transformation ETF (DAPP). It offers a pure-play exposure to the companies powering the digital shift of the world economy.

DAPP in Focus

This new ETF aims to offer exposure to the companies that are at the forefront of the digital asset transformation, such as digital asset exchanges, payment gateways, digital asset mining operations, software services, equipment and technology or services to the digital asset operations, digital asset infrastructure businesses or companies facilitating commerce with the use of digital assets.

The fund tracks the MVIS Global Digital Assets Equity Index. To be included in the benchmark index, a company must generate half of its revenues from digital asset projects, generate at least half of its revenues from projects that have the potential to generate 50% of their revenues from digital assets or digital asset projects or have at least half the assets invested directly in digital assets or digital asset projects.

Currently, DAPP holds 25 securities in its basket, concentrating heavily on the top 10 firms with 65.4% exposure. Galaxy Digital Holdings, Sqaure (SQ - Free Report) and Marathon Digital Holdings (MARA - Free Report) are the top three holdings. Information technology sector dominates the portfolio with 75.8% of assets closely followed by financials (21.8%). From a country look, the United States takes the top spot with 63.4% of assets while China and Canada rounded off the next two (read: 6 Successful New ETFs of First-Quarter 2021).

The new ETF comes with an expense ratio of 0.65%.

How does it fit in today’s portfolio?

The ETF could be an intriguing choice for investors seeking exposure to the rapidly-growing digital transformation, which has been expanding in leaps and bounds over time and became imperative for every organization, whether big or small to remain competitive.

The rising adoption of AI, cloud computing, big data, the Internet of Things (IoT) and machine learning is driving growth. Additionally, the increasing penetration of smartphones, growing demand for industrial automation and the higher uptake of wireless communication are expected to boost the global digital-transformation market. The said market is expected to see a CAGR of 16.5% to $1009.8 billion by 2025 from $469.8 billion in 2020.

Further, cryptocurrencies and blockchain technology are the two pillars of the digital-transformation world. The cryptocurrency market is consistently on a crazy run on investors’ enthusiasm that the crypto will become a mainstream investment and payments, and topped $2 trillion last week. Its market cap has doubled over the past two months with bitcoin, the biggest digital currency, accounting for more than half of the entire cryptocurrency market capitalization (read: Bitcoin at Record $60K: Which Way ETFs are Headed?).

Investors should note that the new fund does not directly invest in cryptocurrency but in relevant digital asset companies that participate in the cryptocurrency space.

ETF Competition

Though the new product doesn’t have a direct contender providing an exposure to such a theme, it joined the other thematic ETF bandwagon, which could pose some threat. In particular, ARK Invest funds have been garnering immense investor interest lately and are currently dominating the thematic space. These include ARK Innovation ETF (ARKK - Free Report) , ARK Genomic Revolution Multi-Sector ETF (ARKG - Free Report) , ARK Fintech Innovation ETF (ARKF - Free Report) , ARK Next Generation Internet ETF (ARKW - Free Report) and ARK Autonomous Technology & Robotics ETF (ARKQ - Free Report) (read: Thematic Investing on the Rise: ARK ETFs Leading the Pack).

Bottom Line

Given that DAPP invests in one of the hottest trends, it won’t be very difficult for the product to see big inflows and a solid investor interest as long as it generates decent total returns, net of expense ratio.

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