Advisors in Focus- March 9, 2021

The future.

Humans obsess about what it may hold. George Orwell’s 1984, The Jetsons, Star Wars all lead us to speculate- what will the world look like in 20+ years?  

Transportation often finds itself at the center of conjecture. Who hasn’t envisioned themselves in a Jetsons car or the Millenium Falcon? Can we create technology that allows us to achieve our dreams?

For companies, it is a little less sexy. Transportation is a major expense. There is a continuous search for ways to lower these line-item costs.

The need for smarter mobility creates its own industry. Investors search for names that can create this competitive advantage.

TrackStar data highlights financial advisors focus on the future of transportation. The SPDR S&P Smart Mobility ETF (HAIL) tracks a list of companies that improve costs of mobility. HAIL was the top search by All Financial Advisor surge list. In today’s Advisors in Focus, we break down the ETF.  

TrackStarIQ Data

Here are some highlights from ALL FAs searches this week –

RankTOP STOCKS – BY ALL FAs (SurgeTraffic) Last WeekTickerTOP ETFs- BY ALL FAs (Surge Traffic) Last WeekTickerTOP STOCKS BY ALL FAs (Total Traffic) Last Week Ticker
1Five Prime TheraFPRXSPDR S&P Smart Mobility ETFHAILRocket Companies Inc Cl ARKT
2LOBE SCIENCES LTD.GTSIFiShares 7-10 Year Treasury Bond ETFIEFTesla IncTSLA
3Sleep Number CorpSNBRCambria Foreign Shareholder Yield ETFFYLDAMC Entertainment Holdings IncAMC
421Vianet Group IncVNETProShares Ultra S&P 500SSOSos LtdSOS
5Flextronics Intl LtdFLEXiShares Expanded Tech Sector ETFIGMKemPharm, Inc.KMPH
6The Dixie GroupDXYNSPDR MSCI ACWI ex-US ETFCWINio IncNIO
7ARC Group Worldwide, Inc.ARCWDirexion Daily Transportation Bull 3X SharesTPORGamestop CorpGME
8Zoom Telephonics Inc.MINMProShares UltraPro Short S&P 500SPXUOcugen IncOCGN
9Turning Point BrandsTPBVanguard Russell 2000 Value ETFVTWVChurchill Capital IV Cl ACCIV
10Amdocs Ltd OrdDOXSPDR Portfolio S&P 500 ETFSPLGPalantir Technologies Inc Cl APLTR
11Reinvent Technology Partners Z Cl ARTPZVanguard S&P Small-Cap 600 Value ETFVIOVfuboTV IncFUBO
12FitLife Brands, Inc.FTLFJPMorgan Ultra-Short Income ETFJPSTApple IncAAPL
13Vroom IncVRMiShares Edge MSCI Min Vol EAFE ETFEFAVZomedica Pharmaceuticals CorpZOM
14Ternium S.A.TXAdvisorShares Dorsey Wright ADR ETFAADRSorrento TherptSRNE
15Quad M Solutions Inc.MMMMiShares MSCI Global Select Metals & Mining Producers ETFPICKDigital TurbineAPPS
16Under Armour Inc Cl CUASchwab Short-Term U.S. Treasury ETFSCHOFreeport-Mcmoran IncFCX
17Ballard Power SysBLDPWisdomTree U.S. Dividend Growth FundDGRWBionano Genomics IncBNGO
18MedX Holdings, Inc.MEDHProShares S&P 500 Bond ETFSPXBCastor Maritime IncCTRM
19ViaDerma, Inc.VDRMHCM Defender 100 Index ETFQQHWorkhorse GrpWKHS
20Vertiv Holdings Llc.VRTUltraShort MSCI Emerging MarketsEEVUWM Hldg CorpUWMC

The rise in rates remains a major story for markets. Inflation concerns are a key driver. However, this is not the only reason for higher yields. A stronger economy also lifts rates. The sell-off in tech masks this aspect.

Price action in transportation reflects the strength of the economy. The iShares Transportation ETF (IYT) trades at all-time highs. The Cass Transportation Index highlights the high demand which allows transports to charge exorbitant fees.  Of course, when transports garner higher prices, companies see their margins impacted. In an interview with Anshu Pradad, CEO of Leaf Logistics, Prasad explained how spikes in transportation costs could be bad for companies like food and CPG producers which already operate on thin margins and pay for transportation into retailers’ facilities.  This drives the search for cheaper global mobility.

Enter the Smart Mobility ETF (HAIL). This ETF focuses on “smart transportation”- companies that advance transportation in autonomous driving, drone technology, and transportation tracking. In short, it searches for companies that improve passage for products and consumers.

The ETF splits constituents into core and non-core names. This depends on a company’s involvement in transportation. It re-assigns higher weightings to core names. This provides investors with a “pure-play” feel to the theme.

SPDR Kensho does a good job with distribution. One company will rarely rise above a 3% weighting. This helps reduce volatility in a space that can be fickle.

The expense ratio for the ETF is 0.45%. However, the distribution yield, which is a measure of an ETFs cash flow payment to advisors, is 0.46%. There is no cost to own this ETF. 

It is always important to review the major holdings of an ETF. This helps you understand exactly what you purchase. 

Some of the top holdings in the ETF may surprise:

  • AgEagle Aerial Systems (UAVS) is a drone manufacturer focused on the ag space. It jumped onto radars last year when rumors of a deal with Amazon (AMZN) surfaced. The AMZN deal never came to fruition. This raised a red flag for some investors. Still, the idea that farmers will use drones to maintain crops draws interest.

  • Plug Power (PLUG) is a hydrogen fuel cell play that operates in battery and fuel station power markets. J.P. Morgan Analyst Paul Coster upgraded the name after its recent pullback. Mr. Coster believes the company could announce a large stationary storage deployment in the near future. 

  • Avis Budget Rental (CAR) is the third-largest component which may come as a surprise. In 2017, Avis announced a deal with Alphabet’s Waymo to support a fleet of self-driving cars. Avis also owns Zipcar, a play on ride-sharing millennials and Gen Zers.

  • Tata Motors (TTM) was an early adaptor of autonomous driving. The Indian-based company began its aggressive pursuit of assisted-driving in 2017. TATA aims to make its Jaguar Land Rover unit (JLR) an all-electric luxury brand. TATA projects the unit can be net-zero carbon by 2039.

  • Baidu (BIDU) is a relative newcomer to the space. Its vast amount of artificial intelligence allows it to catch up with its competitors. You see, for autonomous driving to work effectively, you need hours of actual behind-the-wheel data to feed into the system. BIDU’s Apollo project was just greenlighted by Chinese authorities for road tests. It has logged over three million miles without an accident.

  • Other notables include Ambarella (AMBA); Niu Technologies (NIU); Lyft (LYFT) and Ford Motors (F); General Motors (GM), Tesla (TSLA); NXP Semiconductors (NXPI).

Tech has been one of the worst performers in 2021. The investor euphoria in 2020 has cooled. However, the theme around lower transportation costs will not die. Investors will continue to search for names that provide competitive advantages. The autonomous driving market expects to grow at a CAGR of 12.7% through 2023 which puts its market at $1.19 trillion. That CAGR projects to continue to grow at 14%. This is a potential $3.19 trillion market according to Research and Markets. 

The near-term volatility has scared participants out of the space. But we know you are longer-term investors with horizons over three years. FAs watch this pullback for opportunities. HAIL is a way to play this theme.

There is risk involved given the speculative nature of the space. Questions you want to anticipate from clients may include:

  • What is the earning potential for this group?
  • Are the industry projections for autonomous driving sustainable?
  • Does HAIL give me my desired exposure to the global mobility theme?
  • Do some of the constituents provide me better exposure?
  • Does this ETF incorporate exposure to fueling stations?
  • Where is the proper entry for this ETF?

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