“XOUT” ETF Capitalizes on What You Leave Out, Not What You Put In

When it comes to hard work, you typically get what you put in, but in the case of the GraniteShares XOUT U.S. Large Cap ETF (NYSEArca: XOUT), you get what you leave out. The ETF, which made its debut last week, basically takes a slab of S&P 500 and trims the unnecessary fat—what’s left are companies that aren’t averse to disruption and constantly innovating in order to adapt to an ever-changing business environment.

Fund advantages, per the GraniteShares website:

  • Aims to Leave Losers Out: Instead of trying to pick the winners, XOUT flips the investing paradigm by seeking to identify companies likely to underperform, and excluding them from the portfolio.
  • Forward Facing: Technological disruption is challenging businesses across all industries. XOUT takes the 500 largest U.S. companies, and eliminates 250 names that may be failing to adapt.
  • Alternative Indexing: Passive investing buys everything in the market, even companies in long-term decline. XOUT seeks to detect losers with quantitative scoring, and attempts to leave them OUT.

“Sometimes it’s more important what you leave out than what you put in,” said David Barse, CEO of XOUT Capital, who created the index.

XOUT seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the XOUT U.S. Large Cap Index. The fund seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its assets (exclusive of collateral held from securities lending) in the securities included in the index.

XOUT’s Top 10 holdings as of 9/30/19:

  1. Microsoft Corporation 6.49%
  2. Apple Inc. 6.28%
  3. Amazon.com Inc. 5.34%
  4. Alphabet Inc. Class A 5.28%
  5. Facebook Inc. Class A 3.15%
  6. JPMorgan Chase & Co. 2.30%
  7. Visa Inc. Class A 2.10%
  8. Johnson & Johnson 1.96%
  9. MasterCard Inc. Class A 1.72%
  10. Home Depot Inc. 1.58%

The index utilizes a proprietary, quantitative methodology developed by the index provider, designed to identify companies that have a risk of being disrupted and as a result could underperform their relevant sector.

“A recent report from Accenture that analyzed 10,000 companies across 18 industry sectors from 2011 through 2018 found that 71 percent were in or on the brink of significant disruption,” wrote Karla Krehbiel in a Kenosha News report said. “An estimated $41 trillion in enterprise value across the U.S. has been impacted since 2011.

“Among the industries currently most affected by disruption are health/medical care, financial services, manufacturing and transportation,” the report added. “How—and how quickly—businesses in these sectors respond are critical keys to their long-term success.”

For more market trends, visit ETF Trends.