Over the past few months, ETFs focused on innovative technologies have been all the rage, headlined by the meteoric rise of Ark Investment’s active ETFs managed by Cathie Wood.

But a recently launched, more passive-oriented Direxion ETF has recently outperformed Ark’s $22 bilion flagship Ark Innovation ETF (ARKK). The $178 million Direxion Moonshot Innovators ETF (MOON) has  offered a 29.12% return year-to-date as of this morning, compared to the 0.50% return of ARKK,  according to ETF Database.

“Our greatest differentiator is that  we have a pure focus on early-stage innovation, in micro- , small- and some mid-caps,” said Dave Mazza, head of product at Direxion. “What we’re doing is a combined quantitative and qualitative process to arrive at just 50 stocks that display the most innovative qualities.”

ETF Database says that over the past 13 weeks, MOON as offered 43.84% in returns to ARKK’s 13.15%. What’s more, MOON is doing so with a 0.65% expense ratio compared to ARKK’s 0.75% annual cost. Since Nov. 12 inception, MOON offered an over 70% return on its net asset value as of Feb. 28.

Purely passive methods wouldn’t work to identify small, innovative companies that have an opportunity to grow into the next big technology stocks, said Mazza, because they couldn’t be targeted enough.

“Innovation is a buzzword. It’s’ being used all over the place and not just for ETFs,” he said. “When we think about investing in innovation, we think it’s about divining the early stage innovators.”

MOON tracks the S&P Kensho Moonshot Index, which purports to offer exposure to the 50 “most innovative” companies in the U.S., excluding large- and mega-cap companies like the FAANG stocks.

It scores small- and mid-cap U.S. companies along two criteria: allocation to innovation and innovation sentiment.

Allocation to innovation is measured by ranking companies based on the ratio of their research and development expenses to their revenue compared to peer companies in the same industry.

Innovation sentiment is scored by an AI algorithm that uses natural language processing to pore through a company’s recent regulatory filings for  language related to innovation, using a variety of terms.

“Using sentiment on its own would not be a good thing. You could end up with a universe of securities that are focused on innovation and talk the talk but aren’t doing anything,” said Mazza. “It’s the combination of allocation and sentiment that makes this method powerful. My background is in quantitative portfolio management, and I feel like there’s a lot of potential for systematic, rules-based approaches in this space to remove behavioral biases in this space.”

Direxion uses a modified equal weighting method to allocate among the 50 highest-scoring companies, reranking some by their liquidity potential so that it can continue to trade them. Equal weighting helps avoid a portfolio dominated by a few relatively large mid-cap names.

What results is an index weighted 42.7% to technology companies, 20.3% to health care and 19.9% to industrials. MOON’s top holdings include companies like Plug Power, iRobot, Microvision and Vir Biotechnology.

When viewed from a sub-sector level, nearly 20% of MOON’s holdings are related to genetic engineering, and 16.8% of its holdings are related to cybersecurity. Other top subsectors are clean technology, digital communities, drones and wearables.

MOON also creates an automatic sell discipline. While some investors might be tempted to hold on to these “moonshot” technology stocks until they become overvalued, the ETF’s small- and mid-cap focus makes sure that it’s always looking for the next ideas with the potential to take hold, said Mazza, who added that investors would still likely hold plenty of shares of companies that grow into large- and mega-cap behemoths via their allocations to broad indexes like the S&P 500

Mazza said that MOON would work as a satellite allocation or as a replacement for a portion of a portfolio’s small- and mid-cap allocation.

“One of the real benefits of this in portfolios is that you’ll get access to names you might not be familiar with,” he said. “We purposefully wanted to be able to introduce some of these new securities to investor portfolios. So this would also be a great complement to what some people are doing with single securities. It’s hard to research small- and mid-caps, we’re doing some of the work for you.”