Entrepreneurship plays a significant role in the US economy as new businesses are a crucial driving force for the country's economic growth. Academic research highlights that entrepreneurs are important for job creation, innovation as well as productivity growth.
Recent metrics show that among leading economies, the US has the top startup business rate. According to the Center For American Entrepreneurship:
"Women-founded companies ... are concentrated (relative to startups overall) in areas of consumer goods and services and in health care. The software industry produces the largest number of women-founded startups, accounting for 40% of women-founded companies.”
Many successful emerging companies in the US go public and become listed either on the New York Stock Exchange or the NASDAQ. We previously covered several exchange-traded funds (ETFs) that invest in businesses that have recently become public.
Today, we look at two thematic ETFs that focus on entrepreneurship.
1. Global X Founder-Run Companies ETF
Current Price: $32.98
52-Week Range: $20.76 - $34.75
Dividend Yield: 2.05%
Expense Ratio: 0.45% per year
The Global X Founder-Run Companies ETF (NYSE:BOSS) gives exposure to mid- and large-capitalization US companies in which a founder of the company is serving as the CEO. The fund started in February 2017, and net assets stand at $11.3 million. In other words, it is still a small fund.
BOSS, which includes 100 holdings, tracks the returns of the Solactive US Founder-Run Companies Index. The most important sectors are information technology (28.8%), financials (14.4%), consumer discretionaries (13.9%), real estate (12.5%), communication services (11.0%) and health care (10.9%).
The top 10 names comprise more than 11% of the fund. Steel Dynamics (NASDAQ:STLD), which manufactures steel products; online gaming platform Roblox (NYSE:RBLX); biopharma group Jazz Pharmaceuticals (NASDAQ:JAZZ); logistics and delivery services heavyweight FedEx (NYSE:FDX); and biotechnology group Seagen (NASDAQ:SGEN) lead the names in the roster.
Over the past year, BOSS returned more than 55% and year-to-date it is up 8.5%. Trailing P/E and P/B ratios are 43.16 and 4.12, respectively. Given how far the fund is up in the past year, short-term profit-taking is likely. Interested investors would find better value around $32.
2. ERShares Entrepreneur ETF
Current Price: $23.96
52-Week Range: $19.95 - $32.61
Dividend Yield: 0.72%
Expense Ratio: 0.49% per year
The ERShares Entrepreneur ETF (NYSE:ENTR) invests in entrepreneurial US businesses. Fund managers also consider factors like momentum, sector, growth, value, leverage, market cap and geographic orientation. The ETF was originally founded as The ERShares Entrepreneur 30 ETF in November 2017 but the name was changed to The ERShares Entrepreneur ETF in February 2021.
ENTR's top sector allocation is IT (36.07%). Next in line are health care (23.13%), communications services (17.46%) and consumer discretionaries (12.21%). Many of these businesses have gone public in recent years, and still have one or several of their founding executives on their boards.
The top 10 holdings make up about half of net assets of $137 million. ENTR's top five companies are Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL), Amazom (NASDAQ:AMZN), Oracle (NYSE:ORCL) and online vehicle auction platform Copart (NASDAQ:CPRT). As the fund is top heavy, a large move in these large-cap names will likely affect the price of the fund in the short run.
Year-to-date, ENTR is down more than 19% but it has returned close to 17% in the past 52 weeks. On Feb. 16, the fund hit an all-time high of $32.61. A potential decline toward $21 would improve the margin of safety for long-term investors.