In a year when mega-cap tech firms have taken some serious hits, with big names like Meta, Inc. (META) dropping by as much as 74% YTD and Amazon (AMZN) down almost 50% YTD, investors may be wondering how best to get exposure to innovation. In a market beset by rising rates and geopolitical uncertainty, one option to consider may be an inflation risk ETF like the Donoghue Forlines Risk Managed Innovation ETF (DFNV ) and its fundamental analysis approach.
DFNV comes from FCF Advisors which employs its proprietary free cash flow profitability analysis. The issuer believes that free cash flow has more to tell about a firm’s prospects than earnings alone, given how companies report their revenues and how expenses can affect earnings-based models.
DFNV came to market in the middle of the pandemic, geared towards investors looking to the future in the middle of a period of remarkable economic and societal instability. The ETF invests in all-cap equities that exhibit strong free cash flow and innovation, tracking the FCF Risk Managed Quality Innovation Index.
The ETF then takes the top 25% of the eligible universe and invests based on R&D investment and profits, assets turnover, and financial leverage. DFNV selects up to 120 names and then crucially adds downside protection in bear markets via U.S. Treasury strategies, investing up to 50% of its assets in said Treasury funds and other cash equivalents based on daily buy-sell signals.
The strategy currently holds four Treasury ETFs as its top four holdings with about 50% of its weight, providing ample cover in a complicated environment and also allowing investors to feel confident in its innovation-focused equities. DFNV leads off with Apple (AAPL), Eli Lilly (LL), and Johnson & Johnson (JJC) combined at around 3.5% weight for its equities.
DFNV has seen an increase in net inflows of about $25 million in the last month compared to over the last three months, with its performance increasing in turn by between its one-month and three-month return periods.
With markets still uncertain amid the prospect of a recession still in the cards, investors looking for an innovation risk ETF may want to follow DFNV moving towards the end of a raucous 2022.
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