ETF Pulse Check SPDR SP Kensho New Economies Composite ETF

The SPDR S&P Kensho New Economies Composite ETF (KOMP) seeks to capitalize on the technological innovations that are transforming traditional industries. Tracking the S&P Kensho New Economies Composite Index, it identifies companies that are pioneering advancements in autonomous vehicles, 3D printing, genetic engineering, and nanotechnology among others. Utilizing AI algorithms, it selects its holdings based on their disruption potential and categorizes them as core or non-core. This strategic focus on emerging technologies makes KOMP a relevant investment choice amidst today's rapidly evolving market dynamics, where innovation is the key driver of economic transformation.

Basic Information
The SPDR S&P Kensho New Economies Composite ETF, known by its ticker KOMP, was launched by State Street Global Advisors on October 22, 2018. With an expense ratio of 0.20%, it offers investors a cost-effective avenue to engage with the evolving landscape of new economy technologies. The fund's top holdings include Teledyne (1.31%), OSI Systems (1.24%), and Kratos Defense & Security Solutions (1.16%), while its sector exposure is led by Industrials at 9.09%. Despite a diversified portfolio, KOMP has experienced negative net flows over the past 7 and 30 days, at -0.04% and -0.05% respectively. Its returns have been mixed, showing a decline over a 6-month period and modest growth over a year, coupled with notable volatility ranging from 7.65% to 14.79% over different timeframes. The ETF's max return drawdown figures remain low, indicating some resilience amidst fluctuating market conditions.

News Summary
The industrial sector, forming a significant part of KOMP's portfolio, is currently facing numerous challenges and opportunities. Recent headlines highlight geopolitical disputes and market volatility, with shares of industrial companies declining ahead of the Federal Reserve meeting. The sector is marked by substantial project kickoffs, such as in Greater Houston, valued at $11.5 billion, and strategic expansions like Schneider Electric's collaboration on AI factories. However, the sector also contends with regulatory changes, including a sharp drop in maritime import volume due to tariffs. Additionally, the European Union has faced a significant reduction in exports to the U.S., reflecting broader economic tensions. Collectively, these developments underscore the complex dynamics affecting the industrial landscape and consequently, the ETF's performance.

Analyst Rating: Strong Sell
The SPDR S&P Kensho New Economies Composite ETF currently presents several areas of concern that warrant a strong sell recommendation. Despite its competitive expense ratio and diversified sector exposure, the ETF has experienced negative capital flows, indicating diminished investor interest. The average returns across various timeframes are notably weak, reflecting underperformance and volatility. While the diversification of holdings provides some risk mitigation, the negative flow ratios and high return volatility suggest heightened risk exposure. Consequently, the ETF's inability to deliver consistent positive returns, paired with capital outflows, leads to a cautious outlook for potential investors.

Backtest Scenario
A backtest of the SPDR S&P Kensho New Economies Composite ETF against the industrial sector during 2020's geopolitical trade tensions and tariff impacts reveals KOMP's resilience. In 2020, KOMP outperformed the industrial sector, achieving a robust 59.76% increase. This performance underscores the ETF's strategic focus on innovative technologies, which enabled it to capitalize on opportunities amidst global trade uncertainties and tariff-induced market disruptions. While the industrial sector grappled with supply chain challenges and increased costs, KOMP's alignment with new economy technologies provided a buffer against these pressures, highlighting the advantages of investing in sectors less sensitive to trade-related disruptions.

Risk Outlook
The SPDR S&P Kensho New Economies Composite ETF faces several risks primarily linked to its substantial exposure to the industrial sector. The ongoing geopolitical tensions, such as the US-Russia conflict and Israel-Iran oil price impacts, pose threats to aerospace and defense holdings. Additionally, macroeconomic factors like tariff-induced volatility and European Central Bank policies could challenge companies with international exposure, affecting profitability. While the ETF's diversification offers some risk mitigation, the industrial sector's sizable allocation underscores vulnerabilities to market downturns and sector-specific shocks. Potential liquidity concerns, indicated by recent net flow ratios, further amplify the risk outlook.

Conclusion
The SPDR S&P Kensho New Economies Composite ETF offers exposure to transformative technologies but presents significant risks, making it more suitable for aggressive investors seeking high-risk, high-reward opportunities. Investors should closely monitor geopolitical developments and macroeconomic policies that could impact the ETF's holdings and overall performance.