With the U.S. locked in disputes with China and other trading partners, it was probably just a matter of time before an exchange traded fund issuer smelled opportunity. That opportunity came to life Wednesday with the debut of the Innovation Alpha Trade War ETF TWAR.
What Happened
The new ETF tracks the Martin Global Innovation Equity (MGIE) Trade War Index, which features exposure to global large- and mid-cap stocks. TWAR's index is designed to have a similar risk profile to the S&P 500, and the new fund's underlying benchmark has a beta of 0.91 to the S&P 500, according to issuer data.
TWAR's index “seeks to provide exposure to innovation-rich companies with state-sponsored patronage that have the potential to benefit from trade wars based on their governmental sponsorship or partnerships,” according to M-Cam International.
Why It's Important
While it may appear sensible to build a trade war ETF around defensive domestic stocks from sectors with little export exposure, TWAR does not confine its selection universe to U.S. stocks.
The rookie ETF's underlying index features exposure to over a dozen countries. In addition to the U.S., Japan, the special administrative region of Hong Kong, Canada and Germany are among those represented in the new fund.
While the technology sector has been one of the epicenters of the recent Sino-American trade spat, TWAR features significant exposure to that sector. TWAR's tech allocation features ample weights to semiconductor stocks — a group that has been hammered by the trade war.
“During trade disputes, the presence or absence of intellectual property can offer little protection against government actions,” said M-Cam. “The companies included in the index that powers TWAR may be better-suited to weathering trade disputes between nations, thanks to their state-sponsored patronage.”
The Top 10 holdings in TWAR include Cisco Systems Inc. CSCO, International Business Machines Corp. IBM and Amazon.com Inc. AMZN.
What's Next
The trade war may feel like it's dragging on, but in reality these disagreements do not last forever, meaning the test for TWAR will be how the fund performs in more sanguine geopolitical environments.
The new fund is not cheap, so it does need to deliver returns meriting its 0.81-percent annual fee, which equates to $81 on a $10,000 investment.
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