Invest Now in the Future
Futurists and investment oracles, the gen du monde, are talking up Quantum Computing second only to Artificial Intelligence. Seeking Alpha has posted a plethora of investment articles valuing companies in both fields over the past few years. The consensus among business leaders is that QC & AI are essential tech investment opportunities as huge drivers of business, technology, civilization, and humankind.
In our opinion, retail value investors’ portfolios have more potential opportunities for long-term growth with less risk by adding a position in Defiance Quantum ETF (NYSEARCA:QTUM). Two factors support our assessment, rather than trying to a winning QC & AI individual stock.
Less Risk
First, the concepts and uses of QC & AI are multifaceted. The intersection is fraught with controversy. Defiance cites data on how the thematic ETFs manage $183B in assets but it is less than 2% of tech industry assets; meantime, the themed investment total amounts to 6% of revenue.
Thematic ETFs have had more flows over the past three years than all other sector ETFs combined the company argues. Defiance is out “to capture the most dynamic and disruptive of (QC & AI) trends.” Defiance invests in marquee companies in both sectors and companies that support QC & AI breakthroughs and developments.
Our concern about individual stock picking per QC & AI is highlighted by the minimalist knowledge and artificial implications most investors seem to have about the subjects. For instance, Don Steiger cogently explained to SA followers the distinctions between Quantum annealing computers and quantum gate computers and the distinct applications they have for businesses. Infant companies entering or expanding into a nascent field might make grandiose claims, speak in generalities, and “are either not backed up with details or just fall apart upon scrutiny,” Steiger observes.
At this stage, we prefer investing in a QC & AI thematic ETF, and Defiance in particular. With Defiance, retail value investors reduce risks and potentially generate a healthy return. The ETF is less volatile and offers diversification across the industry group.
Defiance Quantum ETF invests in growth and value companies; they are predominantly operating to develop quantum computing and machine learning technology, information technology, semiconductors and semiconductor equipment, software and services, and technology hardware and equipment.
Defiance Pays
At least 50% of the annual revenue of the company, or its operating activity, generates from the development of quantum computing and machine learning technology. The open-ended fund performance benchmark is the BlueStar Quantum Computing and Machine Learning Index. The fund uses a “passive management” (or indexing) approach to track total return performance.
+60% of its $118.2M assets under management are companies with headquarters in the US. +22% are in Japan, Hong Kong, or Taiwan. The remainder of the companies Defiance has invested in is in Europe. The expense ratio is 0.4%. 99.67% of its asset allocation is in stocks. The rest is in cash.
Defiance Quantum ETF has paid a cash dividend consistently since December ’18; currently, the yield [TTM] is 1.27%. Though the yield appears scanty, it is ticking up and ought to be reinvested by shareholders, in our opinion.
Management at Defiance Quantum ETF remains staunchly committed to the themed ETF. At one point, “every noninverse technology ETF listed in the U.S. (was) in the red (2022).” Looking back, Defiance Quantum ETF’s CEO explained company thinking and optimism about the future:
The way I view the market is that this is painful noise, but I continue to believe technology is going to drive the next decade of the markets… What's unique about thematic ETFs is that a large amount of [them] tend to express themes on things that have to do with disruption and technology in the future, and a lot of the companies that make up those types of themes and beliefs tend to be high growth tech companies.
Big-name companies are investing heavily in QC & AI. That fact bolsters the ETF's persistence. Defiance’s 2023 numbers add more support. Defiance Quantum ETF stumbled about -3% in 2022, while the NASDAQ 100 Tech Sector Index (NDXT) tumbled about -9.5%. The S&P 500 for the year was -5.4%. The NASDAQ Index recovered and YTD is +9%. Defiance Quantum ETF shares are up ~15% YTD. The stock is nearing its 52-week high of $48.41, as the first quarter nears its close. Shares topped +$56 each at the end of 2021.
Momentum and Dividends
The overall assessment from S A is positive and the Quant Rating is pushing to the Strong Buy since February ’23 with Momentum and Dividends getting top marks:
Morningstar assigns Defiance Quantum ETF a 5-star rating for performance the last three years, volatility, and risk with its exposure to over 70 investments in its portfolio:
Takeaway
QC & AI affects healthcare, energy industries, logistics, construction, cybersecurity, environmental sustainability, car manufacturing, customer service, financial services, marketing, education, and business. Some fear the power of QC & AI, while others, like Defiance Quantum ETF’s management, embrace it. Regardless, business is plowing ahead and creating a new field of operations and academic study that unites quantum computing and artificial intelligence.
Retail investors may not be in a position to learn all about the subject and its nuances. Defiance Quantum ETF opens a door with a well-researched, positively recognized, and multi-faceted thematic investment strategy that has a healthy potential opportunity for minimizing risk and increasing potential returns.
This article was written by
Harold Goldmeier
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I write for retail value investors who cannot afford to lose money but sometimes like to take a risk. I speak for free to community and school groups. I was teaching business, social/political activism, and Middle East politics to international university students in Tel Aviv b4 the pandemic hit. A college in Jerusalem hired me to teach business and American Politics beginning in the fall of 2023. I consult with startups and mid-level companies. I co-manage Goldmeier Investments LLC with my son Daniel. I founded the Sappanos Decorating Centers, Chicago, with more than 70 employees and real estate holdings in excess of $15m. I am a former Research and Teaching Fellow at Harvard and Assoc. Prof Tufts Medical School.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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