ETF Edge

Our work-from-home ETF could have staying power beyond the pandemic, Direxion's head of product says

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Direxion head of product talks the firm's new work-from-home ETF

Work-from-home stocks are working.

The Direxion Work From Home ETF (WFH) has been attracting investors since its June 25 launch, a testament to the rising interest in offerings based on the new normal brought about by the coronavirus pandemic.

David Mazza, head of product at Direxion, told CNBC's "ETF Edge" on Monday that WFH has seen "a significant increase in assets and trading volume as investors begin to embrace the fact that it's not just about stay-at-home trades or work-from-home trades."

The fund has climbed more than 5% since its launch. Its top 10 holdings are as follows:

Top Holdings in Direxion's Work From Home ETF

Holdings % weighting
Twilio4.17%
Inseego3.95%
Crowdstrike Holdings3.76%
Avaya Holdings3.17%
Okta3.13%
Box3.00%
Elastic NV2.99%
Zoom Video Communications2.99%
Fortinet2.90%
Ping Identity Holding2.80%

"This is a long-term theme that's beginning to play out in the market, and by that I mean societal acceptance of having greater remote work and the ability to work from anywhere," Mazza said. "The names ... in this portfolio cover four technological pillars that are driving the ability for people to work from home."

  1. The first pillar is cloud technology, represented in Direxion's fund by tech giants Microsoft and Amazon, which both have growing cloud-computing businesses, Mazza said.
  2. The second pillar is cybersecurity, which folds in stocks such as Fortinet and Okta.
  3. The third pillar is "project and document management," Mazza said, citing holdings such as Box and Dropbox.
  4. The fourth and possibly most relevant pillar is remote communications, which accounts for high-profile holdings such as Zoom Video, but also lesser-known names including 8x8 and Twilio, Mazza said. He added that Twilio is helping facilitate New York City's Covid-19 contact-tracing initiative.

"Many of these might not displace a Microsoft or displace an Amazon just because of their influence and pervasiveness across so many pillars that we use as consumers," Mazza acknowledged. "But I think the broader point is that when we begin to think about what are the themes that are going to have legs in the new normal, to me, one of those is all the potential ... to empower us to be productive, to be efficient, whether that's working partially in an office, collaborating with people that are socially distanced from us there or collaborating where some of us are in the office, some of us are at our homes or some of us may be other places."

Tom Lydon, the CEO of ETF Trends and ETF Database, said in the same interview that investing in stay-at-home stocks is "definitely not a fad."

"Everybody in America and around the world is embracing technology, and stocks are benefiting from that," he said. "Some of these stocks you maybe have never heard before, but the ETF companies like Direxion do a great job in talking about the underlying stocks and, really, why they might be different from other holdings that you have in your portfolio."

Lydon called attention to the market's near-obsession with the FAANG names, the longtime acronym for the stocks of Facebook, Amazon, Apple, Netflix and Google parent Alphabet. Along with Microsoft, the six are heavily represented across indexes and ETFs given their massive market caps.

"The question is: What are the future FAANG stocks going to be?" Lydon said, adding that the equal-weighted S&P 500 is now down more than 12% year to date, a sign that big-cap names are responsible for the broader index staying afloat in 2020. The S&P 500, which is market cap-weighted, is down nearly 3% for the year.

"It's been those big stocks that have kind of carried the day, but there are also other stocks that are growing that haven't yet made it into those indexes," Lydon said. "So, we have opportunities with these new creative ETFs that are out there."

WFH climbed 1% on Wednesday. In mid-June, BlackRock filed for its own thematic ETF called the iShares Virtual Work and Life Multisector ETF, though it has not yet disclosed any holdings.

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