In November last year, Direxion bet big on this idea when it launched its Moonshot Innovators ETF, a fund that aims to give investors exposure to the 50 most innovative US companies according to its website.
MOON has been up 59% since its launch on 12 November and is currently in its largest weightings in Vuzix, MicroVision, Tenable Holdings, Fuelcell Energy and Nano Dimension.
Direxion screens companies in two ways: how much they spend on research and development relative to their sales versus their peers, and how often they use terms related to innovation in corporate filings versus their peers.
That helps firm identify a history of innovation, tells David Mazza, Direxion's head of product for the ETF Edge this week on CNBC.
When we think about moonshot innovation, it's not just based on finding the next meme stock, he said in a Monday interview. Now, historically, of course, Apple, Tesla and Amazon would all have been part of the portfolio, but we focused only on small to mid-cap companies.
As it stands, roughly 40% of the portfolio of MOON is concentrated in midcap companies, 30% in small-cap names and the other 30% is micro-cap, said Mazza.
The largest subthemes represented in MOON are genetic engineering at more than 19%, cybersecurity at nearly 17%, digital technology at just under 8%, and drones at around 6%.
These are names that some people might not be familiar with, but they are really exciting things, everything from companies working with 3D glasses for telemedicine and warehouse use to MicroVision focusing on small lasers used in the development of smart displays, Mazza said.
Another holding, ImmunityBio, offers customized cancer and disease treatment based on individual health profiles, said he.
These are the challenges that companies are tackling today that are going to change the world, whether in the next year, five years, 10 years, he said. They 're all at the very early stage of their cycle, of their profit cycle, and now would be the time to begin to think about adding some of these names, adding ETFs like this so you can continue to focus on growth, but just do it in a different way than just the mega-cap growers.
The adapted economy could offer even more runway for innovation, Tom Lydon said in the same interview of ETF Trends's CEO Covid 19.
What the Covid situation teaches us is innovation happens really quickly, he said. It's almost accelerated, so you want to make sure you have a portion in these innovative companies to future proof your portfolio if not for you, at least for your kids and your grandchildren.