Artificial intelligence (AI) might be the talk of the town these days, but quantum computing is the quiet thunder rumbling in the background. It just got much louder with the U.S. White House commiting to roll out a massive $2 billion funding package distributed across nine quantum computing companies.
Key Takeaways:
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The U.S. government is injecting $2 billion into nine firms, including $1 billion to IBM and $375 million to GlobalFoundries.
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Defiance’s QTUM uses a modified equal-weighted index across hardware and foundries to minimize single-stock volatility and avoid over-concentration.
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WisdomTree’s WQTM offers a high-conviction, purity-scored portfolio co-developed with Classiq, packing 44% of its weight into its top 10 holdings for targeted upside.
See More: New Quantum Computing ETF Ready for its Close Up
Quantum Stocks Pop
Quantum computing is an emerging technology that may have taken a back seat to AI in the 24-hour financial news cycle. However, it’s quietly making its way to the passenger seat. The technology leverages advanced physics to solve complex problems. More specifically, it utilizes bits to calculate massive parallel probabilities simultaneously. While AI optimizes data analysis and pattern recognition, quantum computing provides the raw processing power that can handle tasks exponentially faster than a supercomputer. Hence, the White House aims to bolster its sovereign capabilities in the current global technological race.
For the event-driven investors, the news was ideal for companies whose stocks are poised to benefit from the funding. As reported by CNBC, International Business Machines (IBM) received the lion’s share with a $1 billion grant. Other notable funding recipients were GlobalFoundries (GFS) who received $375 million. Innovators in the quantum computing space, D-Wave Quantum (QBTS) and Rigetti Computing (RGTI), will be receiving $100 million apiece.
IBM data by YCharts
The ETF Plays in Quantum Computing
The ripple effect from the White House’s $2 billion investment could naturally project bullish vibes for ETFs that focus on quantum computing companies. Two are the Defiance Quantum ETF (QTUM) and WisdomTree Artificial Intelligence and Innovation Fund (WQTM).
While both ETFs focus on these companies, they couldn’t be more different. That’s underscored by the 36% holdings overlap between the two funds. Ultimately, it’s up to the investor to decide which fund suits their investment objectives best.
QTUM tracks the BlueStar Quantum Computing and Machine Learning Index. It uses a rules-based, modified equal-weighted approach for investors who want to limit volatility. This can be beneficial in a specialized sub-sector of technology like quantum computing, which can witness heavy volatility at times. As such, an equal weighting can prevent the overconcentration in certain index constituents.
QTUM is also more heavily focused on hardware infrastructure that can benefit quantum computing like specialized chip foundries. That said, its top 10 holdings include familiar names in the semiconductor industry like Intel, Micron, and AMD.
On the other hand, WQTM delivers targeted exposure to the quantum ecosystem by balancing pure-play innovators with global technology leaders. The fund’s top 10 holdings includes a couple of the aforementioned names receiving White House funding like Rigetti and D-Wave.
QTUM’s Top Holdings
That said, it doesn’t use an equal weight approach so its portfolio carries higher conviction in its holdings compared to QTUM with a 44% allocation to its top 10. That could ultimately lead to higher volatility, but the potential for higher upside.
Co-developed with quantum software pioneer Classiq, WQTM tracks the WisdomTree Classiq Quantum Computing Index. It provides pure-play exposure to companies at the forefront of hardware, software, and infrastructure along with global leaders in the industry.
Both funds can be an ideal complement to existing technology portfolios that are already heavy in Magnificent Seven names. As such, they can occupy a satellite position in a portfolio’s thematic allocation. As mentioned, it’s up to the investor to decide whether they want a more diversified, equally weighted portfolio with a greater number of holdings or one that’s leaner with higher conviction.
Originally published on ETF Trends
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