New GraniteShares ETF Weeds Out Companies Vulnerable To Technological Disruption

GraniteShares, the exchange traded funds issuer known primarily for its lineup of cost-effective commodities products, expanded its lineup Monday with the debut of a new equity-based strategy aimed at avoiding companies that could be vulnerable to today's rapidly evolving technology landscape.

What Happened

The GraniteShares XOUT U.S. Large Cap ETF XOUT debuted Monday. The new ETF follows the XOUT U.S. Large Cap Index.

“XOUT’s methodology counters traditional investment strategies,” said GraniteShares in a statement. “Rather than trying to pick a select few winners, XOUT flips the investment paradigm by seeking to avoid losers that are failing to adapt amid today’s environment of unprecedented technological change.”

XOUT is home to 249 stocks, according to issuer data.

Why It's Important

Issued by EQM Indexes, LLC, the XOUT U.S. Large Cap Index debuted last month and is rooted in the premise that avoiding losers is often easier than identifying winners. The benchmark starts with a universe of 500 stocks and cuts the bottom 250 that are most vulnerable to technological disruption.

Traits of firms not making the cut in XOUT and its index include slack revenue growth, lack of growth in terms of employee headcount, spotty or declining investment in technology and innovation and those firms with a reputation for consistently disappointing analysts and investors.

Another advantage with XOUT is that it avoids one of the biggest drawbacks of passive investing, that being owning every company in a particular index. For example, the S&P 500 is home to plenty of strong, innovative companies, but that index is also home to some that are vulnerable to technological advancements and owners of S&P 500 index funds and ETFs end up owning the entire basket, not just the good stocks.

What's Next

As for what sectors make the cut for XOUT's stringent requirements, the new ETF allocates about two-thirds of its combined weight to technology, financial services and communication services. Microsoft MSFT, Apple AAPL and Amazon.com AMZN are XOUT's top three holdings, combining for about 18% of the fund's roster.

XOUT charges 0.60% per year, or $60 on a $10,000 investment.

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