'Where Is The World Going?' Evolve ETFs CIO On Why Investors Should Be Focused On The Future

Despite many of its more reactive characteristics, investing is all about anticipating the future. According to Elliot Johnson, CIO for Canadian ETF provider Evolve ETFs, that forward-looking intent is behind every investment product the company has produced.

“Data is the new oil. We see technology disrupting a huge number of parts of society,” said Johnson. “What ties all of [our funds] together is that these are industries that are changing as a result of the ability today for large amounts of data to be analyzed and utilized in real time in ways that were never possible before.”

Johnson was a recent guest on Benzinga’s PreMarket Prep morning show, on which he discussed his perspective on the current market, the company’s new e-gaming fund and the evolution of Evolve ETFs.

While Evolve ETFs is focused on the bleeding edge, Johnson did provide some perspective on the current market environment. Overall, he feels that investors are in a good place, but that the environment is such that even minor news events can introduce an outsized amount of volatility.

I think we’re back into a risk-on environment now, but the volatility remains and it’s a pretty fragile market overall at the moment,” said Johnson. “I think there is a tendency for people to overemphasize some of the geopolitical risk in the short term. We still seem to be in this environment where a tweet on the weekend can cause the markets to sell off and then a tweet later in the week can cause them to rally back.”

However, while Johnson is bullish on equity overall, he sees some headwinds facing U.S. markets simply by virtue of their massive growth. Instead, he sees more asset growth opportunity in other markets.

“Just look at the U.S. market broadly, the levels are not that much higher than they were at the end of 2017, so that’s looking back over a year and a half on the U.S. market. Many other markets in the world are better valued now they’ve come back further.“

Looking where momentum is going, not where it was, is a big part of Johnson overall view of the market and, ultimately, informs which funds and market themes Evolve pursues.

Johnson pointed to tech as a prime example, with giants like Apple Inc. (NASDAQ: AAPL) and Amazon.com, Inc. (NASDAQ: AMZN) already heads and shoulders above pretty much all other publically available equity.

“We really think investors are probably overweight core tech stocks,” said Johnson. “How big can they be? Can Apple double in size? Can Amazon double in size from here, from this point forward? Maybe, but it’s going to be a much more difficult thing to do than some of these tech stocks that are in more unique categories, that’s what we’re trying to do. We’re just trying to build a suite of products for investors to help them go where the world is going, and we think these changes are things that everyone sees around them.”

This was clear from the first ETF Evolve launched on the TSX, the Cyber Security Index Fund (TSX:CYBR), which quickly became the best performing ETF on the exchange in 2018.

Said Johnson, “Not only has it had great performance, but it’s also had better down capture than the Nasdaq for example. There’s very little overlap with Nasdaq 100 in the cybersecurity space. And those are companies where it’s a corporate spending story. There’s no CEO on the planet that’s going to cut back on their firewalls and antivirus software because they had a bad quarter.”

From the first to the latest, Johnson also touched on how Evolves newest ETF, the E-Gaming Index ETF (TSX:HERO), came about as a result of massive, and largely overlooked, changes in how video game companies generate revenue.

As Johnson explained, the video game world has come a long way from simply buying a console, a game and a few controllers.

That model has changed completely over the past 10 years,” said Johnson. “The financial relationship between the game companies and the consumer is very much an ongoing relationship. You have in-app purchases within the game, you have the ability for there to be special events within the game […] that drives demand.”

Ultimately, what motivated the creation of HERO, according to Johnson, was that it effectively encapsulated what Evolve and most investors are seeking to capture in their portfolios: the future.

“The reason why we’re building that ETF is it comes down to that same concept: where is the world going? What are going to be the main drivers of commerce going forward? are there good ways for investors to invest in those areas?”

You can listen to the full June 14, 2019, episode of PreMarket Prep in the player below, or jump to the interview with Elliot Johnson at the 35:20 mark.

PreMarket Prep is a daily trading ideas show that focuses on technical analysis and actionable short term trades. You can listen to the show live every morning from 8-9 ET here, or catch previously aired episodes of the podcast here.

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