Best ETFs Targeting Start-Ups for Q1 2022

Since the Great Recession, technology startups have been the source of the greatest value creation and opportunity. Some of the areas with the most exciting growth include smartphones, the sharing economy, cloud computing, and biotechnology. From Alphabet (Google's parent) to Zoom, select companies have handsomely profited off these trends. And they can deliver exceptional returns to investors, as they tend to have high margins with the potential for fast growth.

Unfortunately for most investors, many tech startups are not available via public markets. They are inclined to stay private as long as possible so that their founders can exercise a more significant deal of control in terms of equity and vision. Once companies do go public, their stock is often spoken for in advance of the initial public offering (IPO) or quickly snapped up on their opening day—which often sends its price soaring.

But don't despair if you want to get in on the ground floor of the next Google or Uber. There are a few exchange-traded funds (ETFs), the retail investor's friend, that specialize in tech startups. Not only do they offer exposure to this type of company, but they also provide all the advantages of ETFs, like diversification and liquidity, which are particularly advantageous when dealing with stocks of this sort. Startups in general, and tech startups in particular, can be extremely volatile in their price and uneven in their growth, not registering meaningful gains for years. ETFs even out some of that risk.

Still, startups are not for the faint of investment heart: they're definitely ones for the "high risk/long-term outlook" section of your portfolio.

Here are three of the top-performing ETFs that target tech-oriented startup companies. All figures as of Dec. 16, 2021.

Key Takeaways

  • Several exchange-traded funds specialize in tech startups, offering a way for retail investors to get exposure to this often difficult-to-access group of high risk-but-potentially high reward companies.
  • The Renaissance IPO ETF (IPO) targets the largest, most liquid, newly listed U.S. initial public offerings, rebalancing its portfolio each quarter.
  • The BlackRock Future Tech ETF (BTEK) specializes in innovative companies within emerging technology fields, investing all over the world.
  • Sutter Rock Capital (SSSS)—technically not an ETF, but a publicly traded investment fund—seeks to invest in high-growth, venture capital-backed private companies. 

Renaissance IPO ETF (IPO)

  • 1-Year Trailing Total Return: 63.70%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 0.0% (suspended)
  • 3-Month Average Daily Volume: 130,715
  • Assets Under Management: $632.65 million
  • Inception Date: Oct. 16, 2013
  • Issuer: Renaissance Capital

The Renaissance IPO ETF (IPO) allows investors to gain exposure to a broad, diversified mix of companies that have just become public. Of course, most of them are not, strictly speaking, startups; but the same trends driving startup valuation in private markets also drive valuations for newly listed companies. Therefore, Renaissance is an effective proxy for risk appetites in startup investing.

The Renaissance IPO ETF replicates the performance of its parent company's Renaissance IPO Index. This index consists of the largest, most liquid, newly listed U.S. IPOs, and it's rebalanced quarterly. No one company is allowed more than a 10% weighting of the portfolio.

Renaissance's top five holdings include:

Sutter Rock Capital/SuRo Capital (SSSS)

  • 1-Year Trailing Total Return on Equity: 64.23%
  • Expense Ratio: n/a
  • Annual Dividend Yield: 46.85%
  • 3-Month Average Daily Volume: 368,100
  • Assets Under Management: $425.8 million (as of Sept. 30, 2021)
  • Inception Date: April 28, 2011
  • Issuer: n/a

Formerly known as GSV Capital, Sutter Rock Capital (SSSS) is not technically an ETF: It's actually the stock of a publicly traded investment fund that seeks to invest in high-growth, venture capital-backed private companies.  However, it provides the same function as an ETF, giving investors low-cost, diversified exposure to innovative, fast-growing young firms.

Sutter Rock's portfolio contains around 39 companies. Its top five holdings account for approximately 54% of the total portfolio. These major holdings include Course Hero, Coursera, Forge Global, Nextdoor, and Blink Health. All of these companies have demonstrated strong growth in terms of users or revenue, and their IPOs are highly anticipated. An investor who expects continued inflation in private markets relative to public markets could play this theme by purchasing SuRo.

Fitting as a stock that invests in early-stage startups, SuRo has been quite volatile. The stock made its debut on April 28, 2011, at $15.00. At this time, it became a hot property, as it held Facebook and Twitter shares, allowing investors to gain exposure before their IPOs. However, once these companies debuted, demand cooled, and the stock tumbled—to as low as $4 in 2017. Since then, it has slowly recovered to close at $12 as of December 2021.

BlackRock Future Tech ETF (BTEK)

  • 1-Year Daily Total Return: 18.95%
  • Expense Ratio: 0.88%
  • Annual Dividend Yield: n/a
  • 3-Month Average Daily Volume: 5,611
  • Assets Under Management: $17.640 million
  • Inception Date: Sept. 29, 2020
  • Issuer: BlackRock

The BlackRock Future Tech ETF (BTEK) specializes in innovative companies within emerging technology fields, in industries "that can shape the global economic future." It invests in firms of any market capitalization located anywhere in the world, its benchmark index being the MSCI All Country World Index.

The ETF keeps a fair amount (currently, around 3% of the portfolio) in BlackRock cash funds. Its top five corporate holdings are:

  • Marvell Technology (MRVL)
  • Tesla (TSLA)
  • Lasertic Corp. (6920)
  • Lattice Semiconductor Corp. (LSCC)
  • On Semiconductor Corp (ON)

 

Article Sources

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