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.”
 

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