Introducing the Spear Alpha ETF (NASDAQ:) – 3Q24 Quarterly Update
Welcome to our latest quarterly update for the Spear Alpha ETF, where we dive into our performance highlights and the trends shaping our investment strategy. In a world filled with uncertainty and macro headwinds, we are here to navigate through the storm and position ourselves for success in the future.
Performance Overview:
In the third quarter of 2024, SPRX experienced a 3.48% decline, while the market was up 5.89% and the sector was up 2.76%. Despite facing challenges such as the carry trade unwind, election uncertainty, and interest rate concerns, we are pleased with how we weathered the storm and set ourselves up for the next wave of growth.
Navigating Through Headwinds:
With many of the obstacles dissipating, we are now seeing signs of growth emerging in various sectors. We have shifted our focus from defense to offense and have seized several attractive opportunities along the way. Let’s delve deeper into the key points shaping our investment approach:
Summary:
- Signs of growth are picking up despite higher interest rates and expected inflation.
- Uncertainty has created appealing opportunities, broadening from AI Hardware to other areas like AI Applications.
- We are adopting an offensive strategy – buying into any market dips.
Growth Across Sectors:
- Hardware: Nvidia led the pack with outsized revenue growth in the first half of 2024. Now, the upside is expanding to custom chips, networking, and power generation as new data centers require additional physical infrastructure.
- Data Infrastructure: After several quarters of negative net new ARR, we are finally seeing positive trends in new business bookings, even for companies with strong revenue growth.
- AI Applications: Transformational use-cases leveraging AI technology are on the rise. While the impact may not yet be reflected in earnings, many companies are hitting significant technological milestones.
Looking Ahead:
As we enter a new year, our confidence is bolstered by several key factors:
- The capex spending cycle is broadening, with a focus on new data centers and physical infrastructure for advanced AI systems.
- Emerging AI applications are showing promise, paving the way for groundbreaking advancements in various industries.
- Valuations remain attractive in certain areas, driven by earnings growth rather than mere valuation expansion.
Performance Contributors and Commentary:
Our portfolio underwent significant changes this year, with a focus on expanding into new areas and optimizing our positions. Here’s a glimpse of our current portfolio and key performance contributors:
- Data Center Hardware: A mix of performance, with processors underperforming and power generation outperforming.
- Networking: Growing opportunities in networking led us to increase our positions in key players like Arista Networks.
- Data Infrastructure and Cybersecurity: Despite challenges, we maintain exposure to this area and actively manage risks in companies like Snowflake and Zscaler.
- AI Applications: Tesla stands out as a top pick, transitioning from EV to full autonomy and robo-taxis.
In conclusion, we are optimistic about the future as we ride the wave of the next technology cycle amplified by AI. Stay tuned for more updates as we continue to navigate the ever-changing landscape of the financial markets.
Investment Risk Management Strategies
As a top investment manager, we utilize two main tools for risk management:
1. Increase Idea Velocity
- During periods of consolidation, we accelerate the pace of generating new ideas.
- For instance, in the past 9 months, we have expanded our exposure to areas “outside of the rack” in the data center value chain, such as networking and energy generation.
2. Profit-Taking and Loss-Cutting
- We take profits on outperforming investments and cut or reduce holdings that are underperforming.
- It is crucial to maintain a consistent level of risk so that when market sentiment turns positive, we are positioned to capitalize on the opportunity.
Active fundamental strategies tend to perform better in a risk-on environment, where investors seek alpha-generating ideas beyond simply tracking the broader market.
We actively manage risk by evaluating the potential risk/reward of each holding, considering earnings trajectory and valuation. Our goal is to align with diversified indices on the downside while delivering differentiated performance on the upside, leveraging our concentrated portfolio.
Frequently Asked Questions about ETFs
Here are some key points on liquidity and market pricing related to ETFs based on common queries:
Liquidity
- An ETF’s liquidity is determined by its underlying holdings, not its size or trading volume.
- Market makers continually create and redeem shares, backing the ETF with its assets for liquidity.
Market Makers
- When investors buy/sell ETF shares, they often transact with market makers who hold shares in inventory.
- This ensures a liquid market for ETF trading compared to matching buyers and sellers for individual equities.
Market Pricing
- The price of an ETF fluctuates with its underlying securities.
- Investors should look at bid/ask quotes and spreads for accurate pricing.
- Our ETF shares are supported by the fund’s holdings custodied at US Bank.
For detailed information on fund prospectus, performance, and holdings, visit spear-funds.com.
Disclosure: The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the quoted performance. For the most recent month-end performance, call 1-833-340-7222.
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