Fintech, Gaming, and Innovative Tech: Our Three "A" Rated ETFs

Premium Stock Picks Feature the Best Companies in ESPO, ARKF and XITK.

Tech in our estimation is the sector holding up the current increasingly-long-in-the-tooth bull market in stocks. We’re concerned about the narrowing breadth, but if there’s a dip to be bought, this is the pond where we’ll cast our line. These ETFs are extremely overbought at the moment. We are waiting for a pullback before we’d even consider entering.

Kathy Wood’s ETF ARK is outperforming most other disruptive tech ETFs, but money flow (CMF) at .16 restricts our grade to “B.” Her fintech ETF ARKF is much stronger from an institutional accumulation standpoint, despite a dip in relative strength in the short term. There are 3 A-rated ETFs in all, including ARKF we’ll spotlight today, including ESPO and XITK.

Premium subscribers, we’ll look at the top companies in these ETFs later in today’s update.

The VanEck Video Gaming and eSports ETF (ESPO), launched in October 2018, offers targeted exposure to the dynamic video game and esports industry. With an expense ratio of 0.56% and managing roughly $296 million in assets, ESPO holds a diverse portfolio. Key holdings include mobile gaming adtech company AppLovin (15.49%), Chinese gaming giant Tencent (7.02%), and console leader Nintendo (6.50%), reflecting a mix of business models and geographies.

ESPO's performance is fueled by powerful industry tailwinds. The gaming sector is experiencing explosive growth driven by technological advancements, increased internet accessibility, and a growing user base. Innovations in virtual reality, augmented reality, and cloud gaming enhance the user experience, attracting more players and investors. The rise of mobile gaming and the popularity of esports and game streaming (Twitch, YouTube Gaming) further accelerate this expansion. Strategic mergers and acquisitions within the industry consolidate resources and improve product offerings, while the COVID-19 pandemic boosted gaming adoption as people sought entertainment during lockdowns.

Gaming and Blockchain Tech

Blockchain technology is generating a lot of excitement, and its potential impact on the gaming industry is significant. The rise of blockchain technology holds exciting implications for the gaming industry and ETFs like ESPO. Imagine a world where gamers truly own their digital swords and armor, earned or purchased within a game. Blockchain makes this possible through NFTs, unique digital tokens that give players verifiable ownership and the ability to trade these assets freely, even across different games. This opens up vibrant in-game economies where players have more control and can potentially earn cryptocurrency rewards.

Beyond ownership, blockchain allows for the creation of decentralized game ecosystems, increasing transparency and player participation. Developers can tap into new revenue models by earning royalties on NFT trades or building play-to-earn games. Imagine a future where your favorite ESPO holding, like Tencent or Nintendo, creates games where you can earn cryptocurrency while playing!

Moreover, blockchain enhances security, reducing fraud and protecting valuable in-game assets. This technology could also enable interoperability, allowing players to use their hard-earned items across multiple games – a game-changer for the industry.

If ESPO's holdings successfully integrate blockchain, it could lead to increased user engagement, new revenue streams, and a competitive advantage. Players may be more invested in games where they truly own their assets. Blockchain-based games and economies can create new ways for companies to monetize their products. Companies that embrace blockchain early could attract more users and gain market share..

The ARK Fintech Innovation ETF (ARKF) is an actively managed fund that goes beyond simply tracking an index. Its portfolio managers actively seek out companies poised to benefit from disruptive financial technology innovations, making ARKF a higher-risk, higher-potential-reward investment compared to passive ETFs. ARKF's focus on disruptive innovation means it invests in companies fundamentally changing how financial services are delivered across various subsectors. This includes digital wallets and payment processors like Block (SQ) and PayPal, neobanks challenging traditional banking, insurtech companies disrupting the insurance industry, and investment platforms like Robinhood (HOOD) that are democratizing investing.

While ARKF includes well-known companies like Coinbase, Block, and Robinhood with clear blockchain connections, its exposure to this technology extends further. These holdings are utilizing blockchain for a variety of applications, from cross-border payments with companies like Ripple and Stellar to exploring the potential of decentralized finance (DeFi) for lending, borrowing, and other financial services.

ARKF's performance has been noteworthy. As of December 6, 2024, its year-to-date return is approximately 50.80%, significantly outperforming the technology sector average of 23.34%. However, to fully assess its performance, it's essential to compare ARKF to a relevant fintech index or ETF and analyze its risk metrics, including volatility and drawdowns. A long-term perspective, considering performance since inception or over a 3- to 5-year period, is also crucial.

The SPDR FactSet Innovative Technology ETF (XITK) offers a compelling way to invest in the dynamic world of technology. Unlike actively managed funds that rely on stock picking, XITK takes a passive approach, tracking the FactSet Innovative Technology Index. This means it aims to mirror the index's performance, offering investors broad exposure to companies involved in key areas like cloud computing, cybersecurity, software development, semiconductors, and hardware production.

One of XITK's strengths is its diversified approach. By investing across a range of innovative technology subsectors, it helps reduce the risk associated with betting on a single company or area of technology. This diversification, coupled with a focus on larger, more established tech companies, can provide a sense of stability for investors.

If you're considering XITK alongside other tech ETFs, be sure to assess the degree of overlap in their holdings to avoid unnecessary concentration.

The StockCheatSheets User Guide is divided into the four sections: Understanding the Tailwind Score and Pre-Trade Checklist , Relative Strength Rank & Trend Reports, Entry Signals, and QuickView Charts. There are also some strategy idea starters. All StockCheatSheets data should be used as a starting point for your own research.

Premium Stock Cheat Sheets