In this article, US-based investment manager Direxion -- which launched the Direxion Moonshot Innovators ETF [MOON] -- suggests a method for investors to measure a company's innovation and expected disruption to an industry.

This article was originally published on Opto - Invest in the Next Big Idea.

For the 35th President, it was the impossible challenge of putting a man on the moon. For the r/wallstreetbets crowd, it's to see their investment in Bitcoin or Tesla [TSLA] rocket to the proverbial moon.

Whether it is the actual moon, or a proverbial one, getting there may not be easy. As JFK framed directly, it is a true test.

In spite of sharp economic contraction and earnings decline, a handful of US mega-cap stocks have recently made it close to moon status. There have been several small cap stocks that have joined the large cap ranks seemingly overnight. Even Bitcoin has made an unbelievable comeback this year, hitting new all-time highs, but with considerable volatility.

While everyone wants the next moonshot in their portfolio, finding one is easier said than done.

We created the Direxion Moonshot Innovators ETF [MOON] in an effort to offer exposure to the 50 most innovative US companies at the forefront of changing our lives not just today, but tomorrow, by identifying the companies both pursuing innovation, and having the potential to disrupt existing technologies and/or industries.

While each moonshot is unique, one common theme of any moonshot is the focus on innovation, whether at the product or company level. But how does one measure innovation? How does one try to systematically capture moonshot potential?

We, and our partners at S&P Kensho, believe in two ways -- allocation to innovation and innovation sentiment, defined as the following.

Since 18 December 2020, we have seen positive portfolio contributions from 15 of the 18 sub-themes. While lighter in weight, sub-themes such as the distributed ledger and wearables have also seen notable performance, where Oneconnect Financial [OCFT] is creating infrastructure around digital finance, and Vuzix Corporation [VUZI] is bringing advanced eyewear technology to the medical and manufacturing fields.

Landing on the moon is hard, but radical solutions and products come from disruptive approaches and technologies. Having a systematic approach to single security selection that stresses innovation can be a great approach. As President John F. Kennedy said in 1962: "We choose to go to the moon... and do the other things..."

This article was originally published in Direxion's Spotlight newsletter on 20 January. For more information about Direxion's thematic ETF range, visit their site.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.

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