Investors looking to tap technology companies with platform-based businesses models have a new exchange traded fund to consider. The WisdomTree Modern Tech Platforms Fund (NYSE: PLAT) debuted Wednesday.
The latest ETF from New York-based WisdomTree Investments, Inc. (NASDAQ: WETF) targets the equally weighted WisdomTree Modern Tech Platforms Index.
“WisdomTree defines a modern technology platform as a company with a non-linear, multi-sided business model focused on creating value by facilitating interactions between two or more interdependent groups through technology,” according to the issuer.
Why It's Important
PLAT is not a dedicated technology ETF. Rather, technology is one of six sectors represented in the new fund and merely the fourth-largest sector weight at 15.33 percent. Communication services and consumer discretionary stocks combine for nearly 59 percent of the new ETF's weight.
WisdomTree uses a variety of criteria in defining platform companies, including customer and producer relationships, platform revenue, platform revenue percentage, producer value and network ownership.
In terms of network ownership and its related effects, that concept is defined as “the company owns the network by which the consumers and producers directly connect. The more consumers that use the platform, the more value each producer will get from the platform, and vice versa,” according to WisdomTree.
Data suggest platform companies can deliver superior earnings and revenue growth compared to traditional firms. Over the past three years, companies in PLAT's underlying index have delivered earnings growth nearly 40-percent higher than the S&P 500's and revenue growth more than double that of the U.S. equity benchmark.
“The structural advantages of the platform-based businesses we seek to invest in can be reflected in financial metrics through robust revenue growth, margin expansion, substantial free cash flow generation and strong returns on capital,” WisdomTree said.
PLAT holds 69 stocks and charges 0.45 percent per year, or $45 on a $10,000 investment. Components in the new ETF include Zillow Group Inc. (NYSE: Z), Teladoc Health Inc. (NASDAQ: TDOC), Snap Inc. (NYSE: SNAP) and PayPal Holdings Inc. (NASDAQ: PYPL).
Stocks from 10 countries are represented in PLAT, with the U.S. and China combining for 77.71 percent of the new ETF's geographic exposure.
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