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Defiance Launches Disruptive Tech ETF

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Exchange-traded funds devoted to technology are already a big hit this year with investors. Robust industry fundamentals and rapid adoption of emerging technology have made this possible. One more fund targeted at Quantum computing, machine learning and AI named Defiance Quantum ETF QTUM was recently added to the space, which is teeming with such products (see: all Technology ETFS here).

The ETF, QTUM, was launched on Sep 5. It provides investors access to cutting edge technologies that are increasing the speed of processing.

“Quantum computing may sound like something from the distant future, but leading technology companies, startups and research universities are already developing and implementing these approaches to solve practical problems and build competitive advantages,” said Matthew Bielski, founder and CEO of Defiance ETFs.

Inside QTUM

The fund tracks the BlueStar Quantum Computing and Machine Learning Index. It follows an equal weighing methodology, helping investors gain exposure to smaller companies that have potential for growth.

The major focus is on quantum computing technology (20.3%), followed by machine learning semiconductors (18.6%), AI chips & technology (15.3%), graphic processing units & other hardware (13.6%), big data & cloud computing (11.9%) and solid state drive technology (10.2%). The fund has 59 holdings with the top weight going to Advanced Micro Devices (AMD - Free Report) with 3.48%. The U.S. market has nearly 75% allocation.

Since its inception, the fund has amassed $2.5 million and charges an expense ratio of 0.65%.

How Does it Fit Into a Portfolio?

The technology-heavy Nasdaq has been a top performer this year returning 16.1% year to date. The most popular Technology Select Sector SPDR Fund XLK has returned 18.1% year to date. This space has been aided by rounds of upbeat data, signaling improving economic growth. The sector performs well in a maturing economic cycle (read: Tech Guru on FAANGs, AMD, a New Disruptive ETF & More).

Quantum computing is the next level in the entire computing process and stretches the horizon of what is possible in the domain of machine learning, AI and other related applications. It has far reaching impact in nearly every industry but more specifically in finance, cyber security, drug discovery, energy and autonomous vehicles.

According to Deloitte, Quantum mechanical mathematics requires fewer steps compared to traditional computers, which makes it more efficient and faster. A quantum computer, which was tested by NASA and Alphabet’s Google GOOGL together, could process algorithms 100 milllion times faster than a traditional computer chip.

The United States has taken the first step toward a quantum computing workforce as the National Quantum Initiative Act was passed on Sep 13. It will help establish a federal program for providing exposure to research and training in quantum computing. It will provide $1.275 billion to several excellence centers to train quantum engineers.  The worldwide spending on IT services is estimated to be $3.7 trillion this year.

Startups and widely renowned tech companies are in the race for developing more powerful quantum computers. IonQ, a quantum computing hardware & software co. in the United States is using ions trapped with electric fields while companies like Alphabet’s Google, IBM and Rigetti are using superconducting circuits.

Christopher Munroe who helped draft this Act said it will help boost the country’s competitiveness internationally. Per Deloitte’s 2018 Technology Industry Trends, there is scope for growth in cloud computing, flexible consumption, cognitive computing, user-friendly tools, APIs, apps and data (read: Forget FAANGs, Focus on Software ETFs).


There are other options available in this space like Global X Future Analytics Tech ETF AIQ, ALPS Disruptive Technologies ETF DTEC, Global X Robotics & Artificial Intelligence Thematic ETF BOTZ, First Trust ISE Cloud Computing Index Fund SKYY and its own Defiance Future Tech ETF AUGR, which was launched in August. All of these funds are majorly U.S.-market centric, AIQ (81%), DTEC (67%), SKYY (88%) and AUGR (63%) with BOTZ having the least U.S. market exposure of 34%. On the expense ratio front, QTUM is beaten by DTEC, which has a lower expense ratio of 0.50%.

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