Direxion Work From Home ETF: A Lack Of Fundamental Due Diligence Make This ETF A Tough Buy

Summary

• Direxion recently launched a brand new ETF playing off the work from home theme.
• The ETF tracks an index that uses an algorithm to detect keywords in company reports to determine holdings.
• A lack of fundamental research along with a silly algorithm to determine stock holdings is likely not an ideal investment strategy.

Introduction

As the COVID-19 pandemic continues to grow in the US, work from home measures appear as though they may be staying around for a while yet. Alphabet (GOOG) recently announced they'll be letting employees continue to work from home until at least July 2021. A full year yet. Amazon employees can work from home until January 8, 2021, and Twitter employees can work from home indefinitely. This bodes well for the new Work From Home ETF (NYSEARCA:WFH) that began trading about a month ago.

The ETF began trading near $50 per share in late June and has climbed too around $54 as of the time of writing on July 30, 2020. The ETF tracks an index that selects work from home stocks based on a natural language processing algorithm. The algorithm scans public company data and reports for keywords related to work from home, selecting companies that use these keywords more often in their reports. The fund charges a fee of 0.45%. That said, there is a noticeable lack of fundamental analysis in the index's holdings. This could lead to underperformance as the ETF is pulled toward companies knowingly using buzzwords to attract investors, rather than actual smart business and capital allocation decisions.

WFH's Current Portfolio

Just like it's index, the Solactive Remote Work Index, WFH owns 40 holdings. The index selects the top 10 stocks that use specific words and phrases in their reports from each of the following four sectors: remote communications, cybersecurity, online project and document management, and cloud computing. The index is equally weighted across all holdings and rebalances semi-annually, as does WFH.

Digging deeper into some of the ETF's current top 10 holdings, we can see that the top ten companies held by the fund make up around 35% of total holdings. This isn't bad considering these

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.