Wall Street is great at creating products that track parts of the market that have already been doing well. Many of these products are me-too products with a different name but ultimately the same results. And no sector of the marketplace has been more attractive to create funds around than Technology. After all – it’s what has led the market higher, and the demand is still alive and well. The question is: Do these funds that come out late in the cycle really add value? That’s what I want to explore in looking at the JPMorgan U.S. Tech Leaders ETF (NASDAQ:JTEK).
Launched on October 4, 2023, the JTEK ETF is an actively managed fund that seeks to deliver capital appreciation over the long term by investing in companies across various market capitalizations within the technology sector and technology-enabled industries.
The fund is managed by an experienced team of portfolio managers, Joseph Wilson and Eric Ghernati, who bring a combined 43 years of industry experience to the table. Their expertise, coupled with the collective insights of JPMorgan’s broader equity research platform, allows them to identify and capitalize on high-conviction opportunities that may emerge from technology-driven disruption. At least – that’s the hope.
Diving into the ETF’s Holdings
JTEK currently has 60 holdings, with the top 10 being all the hits you’ve come to know, love, and chase for their momentum. Meta Platforms (META) and Nvidia (NVDA) make up the largest allocations. Nothing new here, and clearly it’s worked. I will say I’m glad to see that the holdings aren’t overly concentrated – something you typically see in other Tech funds. Still, it would be nice if lesser known Tech names constituted the top 10.
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Sector Composition and Weightings
One other interesting thing about JTEK is the sector makeup. Even though this is a tech fund, it actually has some degree of diversification in sectors like Consumer Discretionary, Industrials, and Healthcare.
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Peer Comparison: JTEK vs. Other Tech ETFs
Now comes the moment of truth. The fund is new and doesn’t have much of a track record, but how has it stacked up so far to the behemoth Technology Select Sector SPDRยฎ Fund ETF (XLK)? Overall, not bad. Even though 6 months is clearly not enough time to come to any conclusions just yet, JTEK has outperformed XLK. Perhaps the active management is helping, or it’s luck. Either way, relatively noteworthy, I’d say out of the gate.
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Pros and Cons of Investing in Tech Here
Let me be very clear here on my views on Technology generally. I think the sector is overvalued, over-owned, and very vulnerable. I expect a broader rotation out of Technology, as I view passive market cap weighted averages at a risky juncture during this part of the cycle following AI euphoria that has resulted in what I’ve called a concentration bubble driven by a select number of mega-cap Tech stocks.
This, however, may be why JTEK is worth considering if you agree with me but still want exposure to the Tech sector. The appeal of actively managed funds is always around how that activity deals with declining market environments. Active management tends to do better during periods of heightened volatility. Granted, it’s not clear how JTEK could perform in a broader correction for tech stocks given its limited history, the hope would be that’s what you would get by considering this over a passive tech fund. In other words, the very reason I’m negative on Tech could be the very reason active management could outperform in the sector. Having said that, there’s not enough history as I noted to have confidence in this, but it’s worth keeping the fund on a watch list just in case.
Conclusion: Too Early To Tell
JPMorgan U.S. Tech Leaders ETF shows promise. I believe the launch is late in the tech cycle, but the active management might be able to navigate through weakness in Tech broadly. You can’t deny the pedigree of the team that’s managing the fund, and I do like the way the holdings are weighted for a sector fund.
Regardless of my views, the track record is too short to have confidence just yet in identifying environments JTEK can thrive in. I will revisit this one in time, but until then, keep on your radar and compare it to XLK when volatility really starts to hit.
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