Spear Alpha ETF Shows Resilience Amid Market Challenges

Quarterly Insights into Spear Alpha ETF (NASDAQ: SPRX)

Welcome to the quarterly update for the Spear Alpha ETF (NASDAQ: SPRX). In this update, we will delve into the performance highlights and the trends that are currently shaping our investment strategies.

In the third quarter of 2024, SPRX experienced a decline of 3.48%, contrasting the S&P 500, which saw an increase of 5.89%, and the Nasdaq Composite, which rose by 2.76%. This period has been marked by significant macroeconomic challenges, including the unwinding of carry trades, uncertainty surrounding elections, and concerns over interest rates. Additionally, specific events, such as the Crowdstrike incident, impacted performance adversely. Despite these challenges, our fund has navigated these headwinds effectively and is poised for the upcoming growth wave.

With many of the macro headwinds beginning to fade, signs of underlying growth are becoming evident across various sectors. Our focus has shifted strategically from defense to offense, allowing us to capitalize on attractive opportunities throughout the year.

Growth Trends and Market Conditions

Here are some observations from our ongoing analysis:

• Even amidst higher interest rates and rising inflation expectations, we see signs of growth picking up across several sectors.
• The uncertainty from early 2024 created a variety of attractive opportunities, with potential growth areas extending from AI Hardware to broader applications in artificial intelligence.
• We are now focusing on offensive strategies, which include buying opportunities during market dips.

While we maintain our base case projection of sustained high inflation and interest rates, which have led to two years of restrained macroeconomic growth, we are starting to observe promising signs of recovery.

Emerging Opportunities in Hardware and AI

1. In the Hardware sector, Nvidia (NASDAQ: NVDA) reported considerable revenue growth during the first half of 2024, and this advantage is now starting to extend to custom chips. As multiple cloud service providers enter this space, we anticipate a rise in earnings due to the incremental infrastructure demand from new data centers.

2. The data infrastructure landscape has shown a positive inflection in new business bookings this quarter after several quarters of negative growth.

3. In the realm of AI Applications, we are witnessing early advancements in transformative use-cases, albeit too early to reflect in earnings as several firms reach significant technology milestones.

Although the risk-off environment persisted into the third quarter, a notable shift occurred as we transitioned into the fourth quarter of 2024. The alleviation of election-related uncertainties has led to a substantial increase in business confidence, suggesting that while inflation may remain high, the combination of growth and inflation is healthier than stagnation.

The Confidence in Future Growth

Looking ahead, several factors bolster our confidence:

• The capital expenditure (Capex) cycle is expanding. Initial investments in AI hardware focused on processors are now moving towards the need for new, advanced infrastructure, such as data centers.
• Emerging AI applications show promise beyond mere productivity improvements, with progress in areas previously constrained by computational limits.
• Valuations, particularly within the mid-cap space, are favorable, driven more by earnings boost than mere valuation expansion.

Performance Highlights and Strategic Directions

This year's portfolio modifications include:

1. Broadening our data center hardware investments into adjacent areas like networking and power generation.
2. Expanding our focus into AI applications.

Currently, our data center hardware category displayed mixed outcomes this quarter, with processors lagging behind while power generation thrived. Notably, Nvidia's performance excelled among our investments, while Marvell (NASDAQ: MRVL) and AMD (NASDAQ: AMD) did not perform as strongly. We increased our stake in Marvell and reduced our exposure to AMD based on our findings regarding the traction of custom chips.

In energy sectors, Constellation Energy (NASDAQ: CEG) emerged as a top performer following restoration announcements for the Three Mile Island plant. Given the long-term underinvestment in power generation, we’re optimistic about what lies ahead and have increased our position in this area while exploring new investments in GE Vernova (NYSE: GEV) and Vistra Energy (NYSE: VST).

Networking remains a key focus area, where we've expanded our positions in companies like Arista Networks (NYSE: ANET), as well as made strategic investments in entities like Astera Labs (NASDAQ: ALAB) and Credo Technology (NASDAQ: CRDO).

The cybersecurity and data infrastructure sectors have faced challenges, highlighted by software companies experiencing slower revenue growth. Despite this, we continue to maintain significant exposure in anticipation of long-term potential upside, actively managing the risks involved.

Effective Risk Management Strategies

We employ two primary strategies for effective risk management:

1. Increasing idea generation velocity: During consolidation phases, generating fresh investment ideas becomes crucial as we expand our focus beyond traditional data center investments.

2. Capitalizing on performance discrepancies: We capitalize on outperformers while prudently managing underperformers to maintain balanced risk levels, positioning ourselves to capitalize when the market outlook improves.

Through disciplined management of risks and a continuous assessment of the risk/reward balance of our portfolio, we aim to align our performance with diversified indices on downturns while generating exceptional results in upticks.

Frequently Asked Questions

What drives the liquidity of an ETF?

The liquidity of an ETF is determined by its underlying assets, not its trading volume or assets under management. It is backed by the holdings within the fund.

How do market makers operate with ETFs?

Market makers facilitate buying and selling ETF shares, providing consistent market access rather than matching individual buyers and sellers directly.

What affects the pricing of an ETF?

ETF pricing fluctuates in real-time based on the performance of its underlying assets. Investors should pay attention to bid/ask spreads for the most accurate pricing.

Where can I find detailed information about the ETF?

For comprehensive details including the fund prospectus and holdings, please visit the company's official site.

What should investors know about past performance?

It's essential to understand that past performance does not guarantee future results, and the value of investments may fluctuate.

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Disclaimer: The content of this article is solely for general informational purposes only; it does not represent legal, financial, or investment advice. Investors Hangout does not offer financial advice; the author is not a licensed financial advisor. Consult a qualified advisor before making any financial or investment decisions based on this article. The author's interpretation of publicly available data shapes the opinions presented here; as a result, they should not be taken as advice to purchase, sell, or hold any securities mentioned or any other investments. The author does not guarantee the accuracy, completeness, or timeliness of any material, providing it "as is." Information and market conditions may change; past performance is not indicative of future outcomes. If any of the material offered here is inaccurate, please contact us for corrections.