XT: An Undervalued Portfolio Of Innovative Global Tech Stocks

seekingalpha10-07

iShares Exponential Technologies ETF focuses on companies driving technological innovation across various sectors, offering diversified exposure to high-growth potential industries.The ETF's ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nXT: An Undervalued Portfolio Of Innovative Global Tech Stocks\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-07 01:32 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4725293-xt-etf-undervalued-portfolio-innovative-global-tech-stocks><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>iShares Exponential Technologies ETF focuses on companies driving technological innovation across various sectors, offering diversified exposure to high-growth potential industries.The ETF's ...</p>\n\n<a href=\"https://seekingalpha.com/article/4725293-xt-etf-undervalued-portfolio-innovative-global-tech-stocks\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"XT","symbol_name":"iShares Exponential Technologies ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4725293-xt-etf-undervalued-portfolio-innovative-global-tech-stocks","article_id":"2473198739","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2035571068/image_2035571068.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2473198739","pubTimestamp":1728235939,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"iShares Exponential Technologies ETF focuses on companies driving technological innovation across various sectors, offering diversified exposure to high-growth potential industries.The ETF's investmen","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"XT":"iShares Exponential Technologies ETF"},"translate_title":"XT：被低估的全球创新科技股投资组合","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XT":0.9},"content_text":"iShares Exponential Technologies ETF focuses on companies driving technological innovation across various sectors, offering diversified exposure to high-growth potential industries.The ETF's investment thesis is centered on capturing the growth of exponential technologies, including AI, robotics, and biotechnology, which are expected to transform industries.The fund looks appealing due to its diversified portfolio, evidential capacity to out-perform (albeit not since January 2021), and alignment with long-term technological trends.At present, XT has clear potential for a high IRR, with the potential for returns of circa 11% annualized over the next five years.   greenbutterfly Introduction iShares Exponential Technologies ETF (NASDAQ:XT) is an exchange-traded fund that invests in \"global companies with significant exposure to exponential technologies which displace older technologies, create new markets, and have the potential to create significantly positive economic benefits\". XT is essentially a growth-oriented tech fund, built upon its chosen benchmark which it seeks to track: the Morningstar Exponential Technologies index. XT carries an expense ratio of 0.46%, making the fund quite expensive to hold. Nevertheless, assets under management were $3.517 billion as of October 4, 2024. This follows net outflows over the past year of -$92 million.   ETFDB.com The current portfolio consists of 190 holdings overall, as of October 3, 2024. Less than 10% of the fund is invested in the top 10 holdings, making XT very unconcentrated as compared to funds that track major market-cap-weighted indices (see below).   Data from iShares.com The top holdings include Nvidia Corp (NVDA), a fabless GPU chip designer and software company, at 1.29%, and Palantir (PLTR), a company provides sophisticated data analytics software platforms and consulting services (notably to government), at 1.09%. Other top holdings include WiseTech Global Ltd (OTCPK:WTCHF), a logistics software company headquartered in Australia, and Broadcom Inc (AVGO), a tech conglomerate which makes and sells a broad range of semiconductor and infrastructure software products. Each of the top 10 are fairly unique, and the global mandate is quite clear. Morningstar are a credible provider of investment research, in my view. However, while XT is not technically \"actively managed\" itself, it is sort of like an actively managed fund insofar it is rebalancing (annually, in this case) in relation to a subjectively constructed index. Morningstar's decisions as to index construction are directly guiding XT's portfolio composition. Nevertheless, the annual rebalancing frequency reduces the uncertainty significantly, and one imagines that the high level of diversification (low concentration) is likely to result in less significant adjustments when the time comes to rebalance. Based on a recent factsheet, Morningstar explain that the nine technological thematics they are interested in, are: big data and analytics; nanotechnology; networks and computer systems; energy and environmental systems; medicine and neuroscience; robotics; 3-D printing; bioinformatics; and financial services innovation. Thankfully, the portfolio itself is profitable; the fund is not invested heavily in high-risk, early-stage startups. In this day and age, much of the R&D is in fact necessarily funded by larger, cash-rich corporations. Morningstar constructs XT's benchmark index using more than 100 equity analysts across various sectors, industries, and regions, whereas each analyst is considered a subject-matter expert. I would like to note, however, that XT has not consistently out-performed the S&P 500 index. In fact, recently it has under-performed, peaking in January 2021 on a relative basis (see chart below).   TradingView.com XT has continued to under-perform since January 2021. Still, from inception in 2015 through to January 2021, XT showed a capacity to out-perform, if the timing is right. The problem with investing in cutting-edge technology companies is that during bad times (e.g., 2022), they can sell off harder than the overall market, as financing costs rise and investors become less interested in funding riskier projects. Higher-end tech companies can enjoy high upside beta in good times, as well as high downside beta in bad times. I calculate the three-year upside beta for XT at 1.24x, and downside beta at 1.23x. Valuation We will use Morningstar's data on the underlying benchmark index to make some assumptions about XT's near-term and forward potential. Morningstar provide similar data for a range of third-party funds, so we have no reason to believe that this data is any less accurate. In fact, the data is typically constructed by taking the independent analysis conducted on individual companies before arriving at the portfolio-level average. In this case, XT's benchmark is estimated to be levelled at a forward price/earnings ratio of 21.16x, and a price/book ratio of 3.11x. The three- to five-year average earnings growth expectation is 13.16%, for the current index composition. The implied one-year forward return on equity is 14.70%, which is decent, but not incredibly high; certainly not as high as funds more heavily weighted toward the major tech stocks. (For example, I recently covered a fund called IXN, with a forward return on equity of over 28%.) I will take a very steady approach, and assume that the forward return on equity actually moderates over time, rather than assume an increase. This still results in an earnings growth rate of about 10% on average, but assumes a slowing of growth through to the geographically-weighted risk-free rate of the portfolio of 3.39% by year six. Further, I will assume that the risk-free rate moderates to 3% by year six, with moderating long-term inflation, and assume that the portfolio grows at the same rate with respect to earnings. We can also assume a slight moderation to the level of beta to 1.2x, and an equity risk premium of 4% scaled by 1.2x (or 4.80%). Together, this lends to a slight reduction in the forward price/earnings multiple in our terminal year of 20.83x, vs. the current multiple of 21.16x. The end result of my assumptions gives rise to a potential five-year IRR of 11.25%. After the regionally-weighted risk-free rate and country risk premium (in the latter case, I used CRP data from Professor Damodaran), the underlying equity risk premium is 7.62%. On the other hand, adjusting for beta instead of using CRP as a measure of risk, the beta-adjusted ERP would be a lower 6.42%, but this is still notably high.   Author's Calculations These results suggest to me that XT is comfortably undervalued, at present. This may be in part because of geographical weights to China (at 6.43%) and Taiwan (at 3.33%), which are both countries generally perceived as being at higher risk for U.S. investors, geopolitically. Nevertheless, the rest of the fund is mostly invested in developed European countries. The largest exposure is the United States, though, at 59.15%. Overall, I think XT offers significant upside potential. Besides the 11.25% IRR potential, a re-valuation potential to a maximum, underlying beta-adjusted ERP of 5.5% would lend to an immediate re-valuation due of over +11%. Therefore, I would not rule out the potential for a short-term spike in XT. Year-to-date performance is \"only\" 3.58%, while the major U.S. indices have risen by much more (the S&P 500 is up about 21.26%, over the same timeframe). I think some catch-up could be found by the end of the year, with a bit of luck. In any event, XT is likely a well positioned and diversified global tech fund. Risks I would say that risks come from two places: one would be general macro risk; i.e., a suddenly harsh recessionary period could knock near-term earnings growth, which would lend to lower valuations. Still, given the already low valuation of XT, the fund could prove to be more resilient to downside pressure. A second important area of risk would be any increased geopolitical escalations or conflicts, particularly in relation to China and Taiwan.  Perhaps another notable risk, which might arise from natural disaster(s) rather than U.S.-Chinese conflict, could be any realized risks in relation to the semiconductor manufacture supply chain. The XT portfolio is heavily exposed to semiconductors, even more so than the general economy. One does not need to be optimistic to invest in XT, but one does necessarily need to not be pessimistic. XT is undervalued, but of course, tail risks remain.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2473198739"}