CIO explains asset manager’s technology success and why it’s doubling down on disruptors
Evolve ETFs is focusing on what works best for them: disruptive tech.
Evolve CIO Elliot Johnson took WP under the hood of the CARS automobile innovation ETF. He explained how the product aims for diversity in an area where headlines typically revolve around one or two products. Johnson believes that product aims for the less-obvious side of auto innovations. He laid out how CARS fits into Evolve’s strategic focus on tech disruptors, a focus they’re now renewing.
“Tech innovation is where we’ve planted our flag, it's where we’ve built our brand,” Johnson told WP. “CARS was one of our original products launched as part of a line of disruptive technology funds. It was the second best performing [unlevered equity ETF] in Canada last year. So themes that we’ve identified as being absent from the marketplace are actually delivering great performance for investors.”
Evolve launched the CARS fund in September of 2017 building it around the auto-industry’s ACES category. ACES, Johnson explained, stands for autonomous, connected, electric, and shared. More than just a fund investing in marquee electric car companies like Tesla, CARS is designed to broadly invest in the supply chains behind the whole ACES category.
Autonomous doesn’t just mean investment in self-driving cars, it means investing in lane change warning indicators now commonplace in most new models. Connected means investing in semiconductor companies like Nvidia or AMD, as well as smartphone and GPS infrastructure. Shared means investing in more than just Uber and Lyft, Johnson explained that nearly every major auto company is developing a rideshare subsidiary. Electrification might be the most recognizable part of CARS but it touches on initiatives that almost every major auto manufacturer has in the works.
“Go to the Auto Show where you can see all this stuff laid out for you,” Johnson said. “Every car company out there has got certainly electrification front and centre.”
The CARS portfolio, tied to the Solactive Future Cars Index, is comprised of around 16% automakers and 67% supply chain. Johnson said that supply chain is what differentiates CARS from just buying Tesla stock.
Johnson pointed out that as much as Tesla’s had a great year, up over 25% by December 31, it suffered a 46% drawdown in the first half of 2019. CARS didn’t have any drawdown and ended up returning 51.96% over the year.
“We doubled the performance of Tesla if you held it point to point for the year, without a drawdown of almost 50%,” Johnson explained.
Despite its successes on the tech front, Evolve recently announced the closure of two marijuana ETFs and its North American Gender Diversity Index Fund.
“We've been in the marketplace for just over two years and we have to take a hard look at our product line from time to time and decide if there are any products that are not gathering assets,” Johnson explained. “Even though we may be passionately excited about the prospects of those investment categories, at some point, we have to say we're not able to get traction in the marketplace.”
Johnson is disappointed by the performance of the Gender Diversity Fund, though noted that other providers have also suffered losses on similar products. He sees the marijuana closures as a product of circumstance: blaming regulatory tangles in Canada and the vaping crisis in the States delaying federal legalization efforts.
“It does allow us to refocus on what we know is working,” he said. “I think our tech innovation is definitely striking a chord with investors and we want to be able to put more resources towards that.”