The U.S. tech industry is back in the spotlight. Artificial intelligence has pushed leaders such as Nvidia and Microsoft to own benchmarks, the two of them now comprising over 40% of the group. For investors, that concentration has been both a source of returns and a point of vulnerability.
TRUT ETF was launched amid shaky market sentiments. See how its prices are moving.
VanEck’s new Technology TruSector ETF (NASDAQ:TRUT), which debuted Aug 21, is intended to counter one of the oddities of investing in such concentrated sectors: tracking error. Conventional sector ETFs are subject to diversification limits in Registered Investment Company (RIC) rules, which have caps on exposure to large positions. That tends to compel funds to underweight the same names that are driving the market.
Nicholas Frasse, Product Manager at VanEck, told Benzinga that the fund is not trying to mitigate policy shifts or volatility. "The goal is to provide true sector exposure in an uncapped way, reflecting how the market itself is weighted," he said. “This allows investors to make their own allocation decisions with the confidence that they’re getting true sector exposure,” he added.
TRUT employs a hybrid strategy, combining individual securities with sector-specific ETFs to stay inside of regulations while still achieving full market-cap weights. “The hybrid allocation is about giving investors the full picture of a sector, without the constraints that traditional sector funds often face,” Frasse said. The fund rebalances quarterly, trying to keep up with quickly moving markets without straying from its central philosophy of uncapped exposure.
That structure, though, puts concentration risk squarely in investors’ hands. “The TruSector ETFs do not attempt to reduce the inherent concentration risk of the sectors they represent. Instead, they seek to reflect the true sector weights, which naturally may result in significant exposure to the largest companies,” Frasse said. In times when big companies lead performance, either positively or negatively, investors will feel it directly.
In practice, TRUT might beat capped competitors such as XLK or VGT when the mega-cap stocks are on the upswing but fall just as dramatically when their names tank. Costs and liquidity, Frasse said, are handled in accordance with industry standards, although the combination of individual stocks and ETFs can introduce variances from vanilla-flavored products.
The debut occurs at a time of increased controversy surrounding the longevity of tech’s rally. AI optimism has been balanced by cautions about overhype, and investors are weighing whether the industry’s titans are worth their sky-high valuations. By removing regulatory filters, TRUT puts the industry in a spotlight as it actually exists: highly skewed towards a handful of dominant players.
For investors, that clarity might prove helpful. But as Frasse explained, it is not accompanied by cushions.
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