September 2021 Qraft ETF Rebalancing Key Takeaways

September 08, 2021 EDT

The Delta-variant seems to have reached its peak, with many firms such as Morgan Stanley[1] predicting that the Delta variant has peaked. However, even if the complete end of COVID seems far away with continuing mutations being reported, and according to McKinsey[2] the public seems to be tired of COVID restrictions. Many are vaccinated and are willing to take a chance as they move towards a bit of normalcy. Worries of the recovery ending last month seem to be unfounded as strong consumer demand continues in many areas. How have these changes been reflected in our September rebalance? Our monthly rebalancing approach allows us to respond to these unexpected changes in economic forecasts. Check out how our AI have factored in these changes in its holdings.

 

Qraft AI-Enhanced U.S. Large Cap Momentum ETF (NYSE: AMOM)

 

Key Takeaways

 

Is AI taking a step into the metaverse*?

  • Jensen Huang NVDIA CEO: “Omniverse or the Metaverse is going to be a new economy this is larger than our current economy.”
    • NVDA Omniverse platform referred to as the “metaverse for engineers”
    • Planned acquisition of ARM[3]
  • FB is diversifying reduce risk exposure with focus on the metaverse
    • Entering the metaverse space with the recent release of ‘Facebook Workrooms’[4]

* Metaverse: Refers to a collective virtual shared space augmented by technology such as the internet

Time to buy Amazon stocks again?

  • AMOM removed AMZN last month before it missed Q2 earnings expectations
    • Now the top holding, which shows responsiveness of active strategy

Addition of WMT emphasizes retail boom in the US

  • WMT launches GoLocal, a last-mile delivery service for other retailers
    • Leverages its expansive infrastructural/logistical network

AI turns back on pandemic trades?

  • Removal of pandemic stocks – ZM, ROKU

Qraft AI-Enhanced U.S. Next Value ETF (NYSE: NVQ)

Key Takeaways

Delta variant seems to peak, and reopening to continue

  • NVQ consumer discretionary holdings increase from 1.97 to 5.15%
  • However, some believe that the end of the monetary policy announced by the Fed will decrease consumer discretionary spending[5]
    • Public sentiment is turning as the Delta variant is thought to have peaked
    • Many are tired of restrictions that have been going on in some countries for more than 2 years and want to remove economic restrictions
  • In line with this we can see a decrease in consumer staples
    • Consumers may be upgrading certain staples with better products in the discretionary sector

AI profit-taking in the energy sector

  • Removal of holdings of ConocoPhillips and Marathon Petroleum Corporation

Qraft AI-Enhanced U.S. Large Cap ETF (NYSE: QRFT)

Key Takeaways

Bullish on healthcare?

  • QRFT increases stake in healthcare sector by more than 4%
  • BAX in talks of $10 billion acquisition of Hill-Rom[6]
  • BSX completed $1.1 billion acquisition of Lumenis[7]
  • REGN’s new Dupixent treatment for atopic dermatitis generating $2.8 billion in the first half of 2021 alone[8]

Healthcare stocks make up the 4 out of the top 10 holdings

  • VRTX new promising treatment for cystic fibrosis gains approval in Canada[9]  
  • LLY purchases Dupixent rival for $1.1 billion[10].

Value: Aims to capture excess returns from stocks that have low prices relative to their fundamental value. This is commonly tracked by price to book, price to earnings, dividends, and free cash flow.

Size: Historically, portfolios consisting of small-cap stocks exhibit greater returns than portfolios with just large-cap stocks. Investors can capture size by looking at the market capitalization of a stock.

Momentum: Stocks that have outperformed in the past tend to exhibit strong returns going forward. A momentum strategy is grounded in relative returns from three months to a one-year time frame.

Quality: Defined by low debt, stable earnings, consistent asset growth, and strong corporate governance. Investors can identify quality stocks by using common financial metrics like a return to equity, debt to equity and earnings variability.

Volatility: Empirical research suggests that stocks with low volatility earn greater risk-adjusted returns than highly volatile assets. Measuring standard deviation from a one- to three-year time frame is a common method of capturing beta.

[1] Durden, Tyler. “It Finally PEAKED: The Delta of DELTA Turns Negative.” ZeroHedge, www.zerohedge.com/covid-19/it-finally-peaked-delta-delta-turns-negative.

[2] “US Consumer Sentiment and Behaviors during the Coronavirus Crisis.” McKinsey & Company, McKinsey & Company, 19 Aug. 2021, www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-us-consumer-sentiment-during-the-coronavirus-crisis.  

[3] Abhinav Davuluri, CFA. “Morningstar, Inc.” Morningstar, www.morningstar.com/stocks/xnas/nvda/quote.

[4] Heath, Alex. “Inside Facebook's METAVERSE for Work.” The Verge, The Verge, 19 Aug. 2021, www.theverge.com/2021/8/19/22629942/facebook-workrooms-horizon-oculus-vr.

[5] Brzeski, Carsten. “Back from the Beach, into the Breach.” ING Think, ING Think, 2 Sept. 2021, www.think.ing.com/articles/back-from-the-beach-and-into-the-breach/.   

[6] Lombardo, Cara, and Dana Cimilluca. “WSJ News Exclusive | Baxter Is in Advanced Talks to Buy Hill-Rom for about $10 Billion.” The Wall Street Journal, Dow Jones & Company, 29 Aug. 2021, www.wsj.com/articles/baxter-is-in-advanced-talks-to-buy-hill-rom-for-about-10-billion-11630274775.

[7] Chesto, Jon. “Boston Scientific COMPLETES $1B Acquisition of Israeli Firm - The Boston Globe.” BostonGlobe.com, The Boston Globe, 1 Sept. 2021, www.bostonglobe.com/2021/09/01/business/boston-scientific-completes-1b-acquisition-israeli-firm/.

[8]  “Regeneron Reports Second Quarter 2021 Financial and Operating Results.” Regeneron Pharmaceuticals Inc., www.newsroom.regeneron.com/news-releases/news-release-details/regeneron-reports-second-quarter-2021-financial-and-operating.

[9] Vertex Pharma Gets Approval for Cystic Fibrosis Drug for Infants in Canada.” MarketWatch, MarketWatch, 25 Aug. 2021, www.marketwatch.com/story/vertex-pharma-gets-approval-for-cystic-fibrosis-drug-for-infants-in-canada-271629921756.  

[10] Taylor, Nick Paul. “Lilly, Swinging at the King, Shows Dupixent Rival Works in Phase 3, but Wait for Key Figures Goes On.” FierceBiotech, 16 Aug. 2021, www.fiercebiotech.com/biotech/lilly-swinging-at-king-shows-dupixent-rival-works-phase-3-but-wait-for-key-figures-goes.  

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Investing involves risk, including loss of principal. The Funds are subject to numerous risks including but not limited to: Equity Risk, Sector Risk, Large Cap Risk, Management Risk, and Trading Risk. The Funds rely heavily on a proprietary artificial intelligence selection model as well as data and information supplied by third parties that are utilized by such model. To the extent the model does not perform as designed or as intended, the Fund’s strategy may not be successfully implemented and the Funds may lose value. Additionally, the funds are non-diversified, which means that they may invest more of their assets in the securities of a single issuer or a smaller number of issuers than if they were a diversified fund. As a result, each Fund may be more exposed to the risks associated with and developments affecting an individual issuer or a smaller number of issuers than a fund that invests more widely. A new or smaller fund's performance may not represent how the fund is expected to or may perform in the long term if and when it becomes larger and has fully implemented its investment strategies. Read the prospectus for additional details regarding risks.


QRAFT AI-Enhanced U.S. Large Cap ETF: Companies in the health care sector are subject to extensive government regulation and their profitability can be significantly affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure (including price discounting), limited product lines and an increased emphasis on the delivery of health care through outpatient services.

QRAFT AI-Enhanced U.S. Large Cap Momentum ETF: The Fund is subject to the risk that market or economic factors impacting technology companies and companies that rely heavily on technology advances could have a major effect on the value of the Fund’s investments. The value of stocks of technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, the loss of patent, copyright and trademark protections, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market.

QRAFT AI-Enhanced US High Dividend ETF: Securities that pay dividends, as a group, may be out of favor with the market and underperform the overall equity market or stocks of companies that do not pay dividends. In addition, changes in the dividend policies of the companies held by the Fund or the capital resources available for such company’s dividend payments may adversely affect the Fund. In the event a company reduces or eliminates its dividend, the Fund may not only lose the dividend payout but the stock price of the company may also fall.

QRAFT AI-Enhanced U.S. Next Value ETF: The value approach to investing involves the risk that stocks may remain undervalued, undervaluation may become more severe, or perceived undervaluation may actually represent intrinsic value. Value stocks may underperform the overall equity market while the market concentrates on growth stocks. The small- and mid-capitalization companies in which the Fund invests may be more vulnerable to adverse business or economic evens than larger, more established companies, and may underperform other segments of the market or the equity market as a whole. Securities of small- and mid-capitalization companies generally trade in lower volumes, are often more vulnerable to market volatility, and are subject to greater and more unpredictable price changes than larger capitalization stocks or the stock market as a whole.

Alpha – Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.

AutoML – Short for Automated Machine Learning, AutoML is the automation of the machine learning process to make machine learning jobs simpler, easier, and faster.

Kirin API - Developed by Qraft’s data scientists, integrates multiple vendors to provide both macroeconomic and company fundamentals with the correct point-in-time data.