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

July 29, 2021
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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

ADDITIONSTickerThematic Classification
Dropbox IncDBXEnterprise Collaboration
ChargePoint Holdings IncCHPTSmart Grids
CRISPR Therapeutics AGCRSPGenetic Engineering
Asana IncASANEnterprise Collaboration
Luminar Technologies IncLAZRAutonomous Vehicles
Nikola CorpNKLAElectric Vehicles
BigCommerce Holdings IncBIGCInternet Infrastructure
Desktop Metal IncDM3D Printing
Xperi Holding CorpXPERAutonomous Vehicles
Velodyne Lidar IncVLDRAutonomous Vehicles
LendingClub CorpLCAlternative Finance
Agilysys IncAGYSFuture Payments
Romeo Power IncRMOElectric Vehicles
908 Devices IncMASSSmart Borders
Eos Energy Enterprises IncEOSECleantech
Arcturus Therapeutics Holdings IncARCTGenetic Engineering
Asensus Surgical IncASXCRobotics
Sohu.com LtdSOHUDigital Communities
Ebang International Holdings IncEBONAlternative Finance
ElectraMeccanica Vehicles CorpSOLOElectric Vehicles
BIT Mining LtdBTCMDistributed Ledger
ProQR Therapeutics NVPRQRGenetic Engineering
Super League Gaming IncSLGGDigital Communities
DELETESTickerThematic Classification
ExOne Co/TheXONE3D Printing
Vir Biotechnology IncVIRGenetic Engineering
A10 Networks IncATENCyber Security
Lyft IncLYFTAdvanced Transport Systems
Wix.com LtdWIXInternet Services & Infrastructure
Zynga IncZNGADigital Communities
Tenable Holdings IncTENBCyber Security
Plug Power IncPLUGClean Technology
FuelCell Energy IncFCELClean Technology
Veoneer IncVNEAutonomous Vehicles
Fate Therapeutics IncFATEGenetic Engineering
Bluebird Bio IncBLUEGenetic Engineering
American Superconductor CorpAMSCClean Technology
Homology Medicines IncFIXXGenetic Engineering
Ooma IncOOMAEnterprise Collaboration
uniQure NVQUREGenetic Engineering
Immersion CorpIMMRWearables
Ribbon Communications IncRBBNEnterprise Collaboration
VirnetX Holding CorpVHCCyber Security
Adverum Biotechnologies IncADVMGenetic Engineering

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

Thematic ClassificationPost-RebalancePre-Rebalance
Genetic Engineering13.56%15.56%
Cyber Security10.45%16.04%
Autonomous Vehicles7.92%3.77%
Enterprise Collaboration7.11%4.20%
Drones5.88%4.95%
Digital Communities5.88%4.37%
Distributed Ledger5.80%3.15%
Electric Vehicles5.49%0.00%
Robotics4.97%3.32%
Internet Infrastructure4.60%0.00%
Smart Grids4.47%1.39%
Alternative Finance4.31%0.00%
Smart Buildings4.04%2.07%
Cleantech3.90%0.00%
3D Printing3.87%5.08%
Space2.10%2.04%
Future Payments2.02%0.00%
Smart Borders1.88%0.00%
Nanotechnology1.74%0.00%

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

NameTickerGICS Sub‐IndustryThematic ClassificationMarket Cap
($, M)
Weight
Asana IncASANApplication SoftwareEnterprise Collaboration9,7482.97%
LendingClub CorpLCConsumer FinanceAlternative Finance1,8472.38%
ChargePoint Holdings IncCHPTElectrical Components & EquipmentSmart Grids9,9872.36%
MongoDB IncMDBInternet Services & InfrastrucInternet Infrastructure23,6132.36%
Varonis Systems IncVRNSSystems SoftwareCyber Security6,0222.33%
BigCommerce Holdings IncBIGCInternet Services & InfrastrucInternet Infrastructure4,5602.24%
CRISPR Therapeutics AGCRSPBiotechnologyGenetic Engineering9,8212.21%
ProQR Therapeutics NVPRQRBiotechnologyGenetic Engineering4542.18%
Asensus Surgical IncASXCHealth Care EquipmentRobotics7182.16%
Silicon Laboratories IncSLABSemiconductorsSmart Buildings6,3232.16%

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.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-301-9214 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

The “S&P Kensho Moonshots Index” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty Asset Management, LLC (“Rafferty”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Kensho Moonshots Index.

Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.

Direxion Shares ETF Risks – Investing involves risk including possible loss of principal. There is no guarantee the investment strategy will be successful. The value of stocks of information technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from competitors with lower production costs. ADRs are issued by non-U.S. companies and are subject to various foreign investment risks including but not limited to the risk that the currency in the issuing company’s country will drop relative to the U.S. dollar, that politics or regime changes in the issuing company’s country will undermine exchange rates or destabilize the company and its earnings. Additional risks of the Fund include, but are not limited to, Index Correlation/ Tracking Risk, Index Strategy Risk, Market Disruption Risk, American Depositary Receipts Risk and risks associated with the market capitalizations of the securities in which the Fund may invest. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

Distributor: Foreside Fund Services, LLC.

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