Events may still effect the current steepness of V’s right arm slope to result in an alternate letter or shape (U, W, L, square root, reverse square root or swoosh) and subsequent total return proposition. Irrespective, in addition to the long view, megatrend ETFs frame aggregated portfolio performance in time series and importantly provide an accounting of absolute component member performance dispersion: PBW one-year total return +39.1% (ranged returns of US exchange-listed component members +841.7%, -42.8%), IDNA +41.2% (+798.3%, -59.5%), BOTZ +15.5% (+137.3%, -60.3%) and QQQ +33.7% (+375.3%, -40.2%). Correlated returns reflect common drivers of valuation at the same time persistent performance differentials create opportunities to complement existing Alpha-Beta portfolio strategies.

Clearly portfolio strategies in active markets are tactically enhanced by Beta-boosters and informed factor tilts. Unfortunately though, despite incremental gains, oblique broad market assumptions often mask Alpha-specific drivers due to a predominantly lagged approach. Contrasting unique company characteristics consistent with elements of the traditional nine-grid style box (Large-, Mid-, Small-cap; Growth, Value, Blend) to principles of Smart Beta and factor investing (growth, value, quality, size, momentum, volatility, equal weighting, rebalancing) recognizes an inherent cyclicality, and subcyclicality, to requisite modeled corporate valuations and relative value assessments. Proprietary research suggests the Alpha-Beta trade-off is best mitigated from the bottom-up.

Conceptually, reconstructing megatrend ETFs and benchmark proxies via Applied Indexation starts at the revenue line by delineating differentiated growth rates of respective business segment operations. Alpha-capturing exercises link ETF component member corporate business profiles tangentially to form distinctive peer groups based on refined sector/industry/subindustry nomenclature assignments. Comparatively, the resultant variances of component member portfolio position weight classifications versus market capitalized position weights reveal meaningful performance causality between structurally embedded ETF research (security selection, size) and implicit tenets of Smart Beta and factor strategies.

The empirical premise of designing portfolio management strategies based on business segment operations lends advantage to index applications by limiting inefficiencies in third party data that predictably skew peer group analytics and valuation. Properties of business segment operations presentation are three-fold: 1) multinational and Large-cap companies function as benchmark proxies based on scale, 2) Small- and Mid-cap companies compete as peers by defined business segment operations and 3) subsets of 1) and 2) provision multiple economic sectors, asset classes and geographies.

To illustrate, Top/Bottom-5 component member equity performers of Renewables megatrend (PBW) are exhibited in the proceeding table listed with their corresponding prior five-period data set of past-positive forward looking inverse indicators (variance of portfolio weight to market capitalization per position per classification). Observable are the quarterly variances derived from business segment operations which produce directional valuation trends in both long and short positions: