Moonshot Innovators: Out with the Old, In with the New.

DAVID MAZZA, MANAGING DIRECTOR, HEAD OF PRODUCT & INKOO KANG, VICE PRESIDENT

The Direxion Moonshot Innovators ETF gained 14.55%/14.62%* (price return/NAV return) in the first half of 2021^[1], outpacing the S&P 500, Nasdaq-100 and Russell 2000 Indexes during that period.

LiDAR, AUTONOMOUS VEHICLES AND WEARABLES

During that first half of 2021, we witnessed some real moonshot potential come to fruition in both single names and across broader themes. Back in February, MicroVision (NASDAQ: MVIS) announced that the first wave of samples of its first generation, long-range LiDAR sensors were almost ready. The potential implications of their groundbreaking technology across the EV and autonomous vehicle space was quickly recognized by the marketplace, and MVIS delivered 250% gains through June 18. Vuzix (NASDAQ: VUZI) and Energy Recovery Inc. (NASDAQ: ERII) were also standout names through this period, as investors saw remarkable innovation being delivered by these firms for wearable technologies and fresh water solutions.

PROGRESS TOWARDS THE IMPOSSIBLE SOMETIMES RESULTS IN FAILURE

On the flip side, not all moonshots reach their full potential. In April, Adverum Biotechnologies (NASDAQ: ADVM) cited apparent side effects of decreased vision in a patient in trials for its lead gene therapy candidate, ADVM-022, for diabetic macular edema (DME). Soon thereafter in July, Adverum announced that they will no longer advance that candidate for treatment in DME due to dose-limiting toxicity, and the stock traded down to a 52-week low below $3 a share. Less than ideal outcomes are common in the genetic engineering space, but we continue to press forward for solving for some of the most audacious and unmet needs in human health.

BLOCKCHAIN, DRONES AND GENETIC ENGINEERING

In broader thematic exposures, investors continued to place premiums and recognize the innovation happening in the 3D Printing, Smart Grids, Enterprise Collaboration and Distributed Ledger (blockchain) sub-themes. The average performance for stocks representing those sub-themes in MOON delivered returns of 47.7%, 46.8%, 22.3%, and 15.4%, respectively. The Drones and Genetic Engineering sub-themes were the notable laggards, with negative average stock returns of 7.5% and 9.5%, respectively.

MOONSHOT PERFORMERS DELIVERED OUTSIZED CONTRIBUTIONS FOR MOON IN THE FIRST HALF OF 2021

Source: Bloomberg, L.P. as of June 18, 2021.

MOON seeks to track the performance of the S&P Kensho Moonshots Index, which offers exposure to what the index measures as the 50 most innovative early stage US-listed companies pursuing innovation and having the potential to disrupt existing technologies and/or industries. These 50 companies selected for inclusion are deemed to have the highest “early-stage composite innovation scores” spanning multiple themes. A company’s “allocation to innovation” and “innovation sentiment” comprised the composite score.

NEW MOON RISING

While the index added 23 companies, and removed 20, the underlying thematic allocations and exposures remained relatively consistent. That said, new names across the Internet Infrastructure, Alternative Finance, Clean Technology, Future Payments, Smart Borders and Nanotechnology themes have added more breadth to the exposure to innovation and disruption that the MOON ETF is keen on delivering. This level of turnover during the annual reconstitution is consistent with expectations.

MOON ADDED 23 COMPANIES & REMOVED 20

Source: Bloomberg FInance, L.P. as of June 18, 2021.

Thematically speaking, the Electric Vehicles sub-theme saw the largest increase, moving from 0% to over 5% with Nikola Corp. (NASDAQ: NKLA) being the most notable name added to the basket, along with Romeo Power Inc. (NYSE: RMO) and ElectraMeccanica Vehicles Corp. (NASDAQ: SOLO). Exposure to Autonomous Vehicles saw an uptick through the form of “systems and solutions” names with some interesting new additions in Xperi Holding Corp. (NASDAQ: XPER) and Velodyne Lidar Inc. (NASDAQ: VLDR). In the Genetic Engineering sub-theme, CRSPR Therapeutics (NASDAQ: CRSP) was the most notable company to be added, as overall exposure to the theme decreased slightly with net deletions. As noted earlier, Alternative Finance, Clean Technology, Future Payments, Smart Borders and Nanotechnology are entirely new themes included in the portfolio, comprising nearly 15% of the portfolio.

Through the modified equal weighted approach, names such as Microvision, Inc. and Vuzix Corp. decreased in weight after their remarkable gains in the first half of 2021. Overall, Cyber Security exposure declined the most following the rebalance.

MOON’S THEMATIC ALLOCATIONS REMAINED RELATIVELY CONSISTENT

Source: Bloomberg Finance, L.P. as of June 18, 2021.

As expected with an investment strategy that tilts toward early stage innovation, the reconstitution drove a decrease in large caps and increased exposure to small and mid-cap allocations. Large caps now represent less than 9% of the portfolio. Of course, this may increase should the current firms increase in market value, which aligns with the strategy’s systematic approach to buying low and selling high.

MARKET CAP MOVED LOWER

Source: Bloomberg Finance, L.P., as of June 18, 2021.

Over the next quarter, MOON’s performance may be influenced by macro factors, such as interest rates, but the strategy’s tilt toward disruptive innovation remains attractive to investors looking to diversify away the mega caps continuing to dominate many indexes and even active funds. In short, MOON looks and behaves quite differently than many other offerings in today’s investment landscape.

MOON TOP 10 HOLDINGS

Source: Bloomberg Finance, L.P. as of June 18, 2021.

^[1] Data through June 18, 2021.

* The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus. For standardized and month-end performance, click here.

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