Loup Frontier Tech Benchmark: September 2021
For twenty years, the team at Loup has had a pulse on technology and a point of view on how that tech will change the world. The cutting edge of that change is frontier tech, driven today by AI, fintech, robotics, autonomous and electric vehicles, and virtual/augmented reality. We provide exposure to these themes through our partners at Innovator Capital Management. For more information click here.
Why Frontier Tech?
Frontier tech represents the forward-most edge of understanding and achievement in technology. By definition, what is frontier today will not be frontier tomorrow—it is dynamic. These are the technologies with the greatest opportunity to create value for investors
Here is the Loup Frontier Tech Index performance update as of September 30, 2021:
What’s on our minds this month
Two topics are top of mind.
1) Fears of continued inflation will spark higher interest rates in the near term which will be a drag on high-multiple tech companies. We’ve been anticipating this dynamic for the past couple of months and have positioned the Loup index better than its peers by favoring companies with real earnings and reasonable multiples. For example, the 2022 PE for LOUP is 30x, compared to ARKK at 200x.
2) Gridlock in the US Congress over the debt ceiling. We believe the most likely outcome is a downgrade of the US credit rating by Fitch, likely mid-October. This would further pressure the broader US equities market and bode well for lower multiple stocks that are reflected in LOUP.
Longer-term themes that are top of mind include the metaverse, and separately, the trend to buy-now-pay-later (BNPL) options. Both remain nascent and will be thematic opportunities for tech investors for many years to come.
Changes to the Loup Frontier Tech Index
Coinbase Global Inc. (NASDAQ: COIN). The one addition to the portfolio this month was Coinbase. Today, Coinbase is the leading exchange to purchase and trade cryptocurrency. In the future, we believe Coinbase will become the bank of the metaverse (immersive 2D and 3D worlds that will dominate our work and play time). The reason is because the native currency of the metaverse will be crypto, and Coinbase is the best crypto exchange.
Huya Inc. (NYSE: HUYA). We exited our position in Huya to reduce our overall China exposure based on our belief that investing in China will be more difficult in the next couple of years given changes to the geopolitical landscape. We continue to own (5% of the index) one China based company, Baidu, based on the company’s solid search business, in combination with the upside potential in its autonomous car division, Apollo.
Top 10 Holdings (Weights as of October 4, 2021)
- Ambarella Inc, 5.78%
- Snap Inc, 5.26%
- Baidu Inc, 4.83%
- SK Hynix Inc, 4.8%
- Affirm Holdings Inc, 4.18%
- Harmonic Drive Systems Inc, 4.02%
- Overstock.com Inc, 3.58%
- Ford Motor Co., 3.38%
- Novanta Inc, 3.14%
- II-VI Inc, 3.10%
Weight by Theme
- VR/AR – 40%
- AI – 17%
- Robotics – 17%
- Fintech– 17%
- EVs/AVs– 10%
The Loup Frontier Tech Index tracks the performance of publicly traded companies developing frontier technologies including, but not limited to, AI, fintech, robotics, autonomous and electric vehicles, and virtual/augmented reality. We’ve licensed the index to Innovator Capital Management. For more information click here.
Register for our next Tech Roundtable with the Loup team, a quarterly webinar to discuss the latest in frontier tech.