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Individual Stock Stories within Disruptive Technologies Trump Market Volatility Last Week

  • Last week, the ALPS Disruptive Technologies ETF (DTEC) rallied 1.57% as growth stocks bounced on weakening economic outlooks, hoping for a pause in Fed-driven rate hikes. Seven of the 10 disruptive technology themes in DTEC rallied 100 basis points (bps) or more last week, as investors reengaged positions on idiosyncratic (disruptive) stock stories that have the potential to outgrow the market over the next few years.

  • Among DTEC’s equally-weighted disruptive technology themes, Mobile Payments (10.07% weight*) and Healthcare Innovation (10.15% weight*) led the fund’s returns last week. Healthcare Innovation name, Dexcom Inc. (DXCM US, 1.23% weight*), jumped nearly 27% following the Center for Medicare and Medicaid Services (CMS) proposing to expand coverage of continuous glucose monitoring (CGM) devices, which analysts expect to double Dexcom’s market opportunity for its CGM device. Mobile payment providers, Pagseguro Digital Ltd (PAGS US, 1.15% weight*) and GMO Payment Gateway Inc. (3769 JP, 1.12% weight*), both gained over 10% last week in a follow-through rally for the space after another private equity buyout of an industry competitor was announced last week at a substantial premium. A William Blair analyst noted that the deal “Continues a string of M&A activity in the fintech/payments sector and further validates a core part of our M&A thesis entering 2022, given depressed valuations and attractive fundamentals.”

  • DTEC Robotics & Artificial Intelligence name, Keyence Corp. (6861 JP, 1.06% weight*), rallied over 8% last week after the Bank of Japan (BoJ) raised manufacturing capital expenditure (CAPEX) projections for fiscal 2023 to 21.2% year-over-year in Japan, in which Keyence’s sensors and automation technology should benefit as supply constraints ease and global labor shortages drive increased automation. The BoJ news lifted several other Robotics and Automation names in DTEC, including Autostore Holdings Ltd (AUTO NO, 1.10% weight*) +20.93%, Omron Corp. (6645 JP, 1.06% weight*) +6.32%, Dynatrace Inc. (DT US, 1.01% weight*) +4.63%, Cognex Corp. (CGNX, 1.07% weight*) +3.57%, and Fanuc Corp. (6954 JP, 1.00% weight*) +3.36%.

  • Touching on other top gainers across DTEC’s diversified disruptive technology themes last week, Internet of Things (IoT) name, ADT Inc. (ADT US, 1.12% weight*), rose over 10% on an upgraded Moody’s outlook to “Positive from Stable”, signaling favorable operating trends and improving liquidity for the security systems provider. Additionally, Cloud Computing name, ServiceNow Inc. (NOW US, 0.98% weight*), climbed over 6% last week following an announced $250 million contract with the US Department of Health and Human Services (HHS) to optimize its inventory and procurement processes. Finally, Clean Energy name, China Longyuan Power Group (916 HK, 0.87% weight*), rallied nearly 3% last week after JP Morgan said it expects Longyuan’s wind power generation growth may reach +26% year-over-year in September.

“In 2023, we see the continuation of innovations and developments in transformative technologies such as artificial intelligence (AI), the internet of things (IoT), virtual and augmented reality (VR/AR), cloud computing, blockchain and super-fast network protocols like 5G. This brings us closer than ever to the point where we are able to create “intelligent enterprises” where systems and processes support each other to complete menial and mundane tasks in the most efficient way possible.”

– Forbes, October 3, 2022

Unfolding Global Trends Lead to Faster Adoption of DTEC’s Disruptive Technology Themes
  • Disruptive technologies adoption has become the mainstay solution for companies to better compete and countries to better survive the increasingly unpredictable future. From the global pandemic to the Russia/Ukraine war, to the increasing deglobalization of the world, we believe innovation and disruption are what will protect a company’s competitive advantage, a country’s national security and the world’s changing climate going forward, which is why DTEC diversifies across ten disruptive technology themes set to help solve these precarious dynamics.

  • As an example, cybersecurity is becoming ever more crucial to national security and corporations as cyber warfare becomes a key part of any proxy war. For the 12th year in a row, the US holds the title of the highest cost per data breach at ~$9.44 million, per an IBM study. What’s more, in 2022, it took nine months on average to identify and contain a data breach, which can be extremely costly for enterprise businesses. Advances in cybersecurity, AI, cloud computing, IoT, mobile payments, fintech, data & analytics and even clean energy security will likely continue to be based around protecting and growing any country’s or company’s self-interests.

20221010-chart

  • Endpoint detection and response (EDR) is the fastest-growing segment within Cyber Security’s $71 billion total addressable market.

  • Per Bloomberg, pure-play cloud security providers, such as CrowdStrike (CRWD) and Zscaler (ZS), both 1% holdings in DTEC*, have so far sustained top-line growth of at least 50-60% in 2022, where topline growth has been slowing for larger tech conglomerates like Microsoft (MSFT) and Alphabet (GOOGL).

* Weight in DTEC as of 10/07/2022

Performance Summary
  1 Week YTD 1 Y 3 Y
ALPS Disruptive Technologies ETF (DTEC) 1.57% -33.75% -33.61% 12.02%
Indxx Disruptive Technologies Index - NTR 1.70% -33.43% -33.23% 13.87%
Morningstar Global Markets Index - NR 1.82% -24.36% -20.63% 14.05%


Source: Bloomberg L.P., as of 10/07/2022

Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.

For standardized performance please click here.

Top 10 Holdings
Dexcom Inc 1.23%   HealthEquity Inc 1.13%
Zscaler Inc 1.22%   ADT Inc 1.12%
Pagseguro Digital Ltd 1.15%   GMO Payment Gateway Inc 1.12%
Kaspi.KZ JSC 1.15%   Silicon Laboratories Inc 1.11%
CyberArk Software Ltd 1.14%   Black Knight Inc 1.11%


As of 10/07/2022, subject to change

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

Shares are not individually redeemable. Investors buy and sell shares on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 5,000, 25,000 or 50,000 shares.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus.

Companies that the Index Provider believes are developing disruptive technologies may not in fact do so or may not be able to capitalize on those technologies. Companies that develop disruptive technologies may face political, legal or regulatory challenges. Such companies may also be exposed to risks applicable to industries or sectors other than the disruptive technology Theme for which they are chosen and may underperform relative to other companies that are also focused on a particular Theme.

Smaller and mid-size companies often have a more limited track record, narrower markets, less liquidity, more limited managerial and financial resources and a less diversified product offering than larger, more established companies. As a result, their performance can be more volatile, which may increase the volatility of the Fund’s portfolio.

The large capitalization companies in which the Fund invests may underperform other segments of the equity market or the equity market as a whole.

The Fund’s investments in non-US issuers may involve unique risks compared to investing in securities of US issuers, including, among others, less liquidity generally, greater market volatility than US securities and less complete financial information than for US issuers. In addition, adverse political, economic or social developments could undermine the value of the Fund’s investments or prevent the Fund from realizing the full value of its investments. Finally, the value of the currency of the country in which the Fund has invested could decline relative to the value of the US dollar, which may affect the value of the investment to US investors.

The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.

Basis Point (bps): a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.

Mergers and Acquisitions (M&A): the area of corporate finances, management and strategy dealing with purchasing and/or joining with other companies.

Indxx Disruptive Technologies Index (IDTEC): designed to track the performance of companies that are likely to disrupt an existing market and value network, displace established market leading firms, products and alliances and increasingly gain market share.

Morningstar Global Markets Index: measures the performance of the stocks located in the developed and emerging countries across the world. Stocks in the index are weighted by their float capital, which removes corporate cross ownership, government holdings and other locked-in shares.

One may not invest directly in an index.

ALPS Advisors, Inc. is affiliated with ALPS Portfolio Solutions Distributor, Inc.

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value

DTG000394 01/09/2023

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