PandoCMS Innovation ETF: Dissecting the AI-Driven 80% Surge

PandoCMS Innovation ETF: Dissecting the AI-Driven 80% SurgeThe Hong Kong-listed PandoCMS Innovation ETF achieved a remarkable 80% return in 2024, its success attributed to its precise targeting of the burgeoning artificial intelligence (AI) investment theme. In an interview with CNBC Pro, Beck Lee, the fund's Chief Investment Officer, revealed its unique investment strategy: a blend of macroeconomic factors and fundamental company analysis

PandoCMS Innovation ETF: Dissecting the AI-Driven 80% Surge

The Hong Kong-listed PandoCMS Innovation ETF achieved a remarkable 80% return in 2024, its success attributed to its precise targeting of the burgeoning artificial intelligence (AI) investment theme. In an interview with CNBC Pro, Beck Lee, the fund's Chief Investment Officer, revealed its unique investment strategy: a blend of macroeconomic factors and fundamental company analysis.

Lee explained that the PandoCMS Innovation ETF's portfolio construction employs a dual top-down and bottom-up approach. "The top-down approach helps us identify key themes, such as the impact of Fed rate decisions, and pinpoint high-growth sectors like AI or cryptocurrencies," Lee explained. "The bottom-up approach allows us to delve deeper and find high-quality stocks with solid fundamentals."

This strategy centers on long-term gains rather than short-term market fluctuations, particularly within the AI sector. Lee stressed that AI isn't a fleeting trend but a long-term phenomenon. "This isn't a one or two-year thing," he said, echoing Nvidia CEO Jensen Huang's view that AI, having evolved from understanding visual and textual information, is now moving towards applications in the physical world.

The PandoCMS Innovation ETF holds a concentrated portfolio of 17 stocks encompassing tech giants and industry leaders, including Microsoft, chipmaker TSMC, Spotify, Apple, Amazon, Netflix, Nvidia, and Tesla. This carefully curated portfolio has made it one of the best-performing actively managed ETFs globally. These 17 stocks achieved an average return of 75% in 2024 (unweighted).

Managing US$10 million in assets, the fund primarily invests in US-listed companies. Its parent company, PandoFinance, established in 2021, is a relative newcomer but already manages over US$500 million in assets. This success is driven by the extensive industry experience of its executives, such as CEO and founder Junfei Ren, who previously held executive positions at Deutsche Brse and ZhenFund, one of China's largest venture capital firms. PandoFinance also manages a blockchain-focused ETF, demonstrating its expertise in the high-tech sector.

Lee noted that their cryptocurrency expertise was applied to the CMS Innovation fund, leading to holdings in MicroStrategy and Coinbase. MicroStrategy, known for its significant Bitcoin holdings, is considered a proxy for Bitcoin and saw a stunning 358% surge in 2024. This stock was among the PandoCMS Innovation ETF's top ten holdings, significantly contributing to the fund's overall performance.

Nvidia and Spotify, also core holdings, both achieved triple-digit returns in 2024. Lee remains confident in Nvidia's future, believing its widespread AI applications are driving structural changes in the global economy. "Nvidia is leading the AI revolution," Lee added, "and it will continue to benefit from the broad adoption of AI."

However, Lee expressed some caution regarding Nvidia's high gross margin. "I think Nvidia's 75% gross margin is hard to sustain," Lee stated. "I predict it will drop to the low 60s, maybe not next quarter, but perhaps next year." He believes increased competition will likely lead to margin compression.

Microsoft, one of Nvidia's largest customers, has already begun to address potential cost pressures. Analysts report that Microsoft has signed deals with California-based chip designer Broadcom to source cheaper AI chips, reflecting a broader cost-control trend among tech companies. Within the PandoCMS Innovation ETF, Microsoft holds a 9.4% weighting, while Broadcom accounts for 2.9%. The fund has held Broadcom and TSMC since its inception, reflecting its long-term bullish view on the chip industry.

In contrast to the stellar performance of most holdings, AMD and Adobe underperformed in 2024, declining by 18% and 26%, respectively. By the end of 2024, both stocks represented less than 2% of the fund's holdings, demonstrating the PandoCMS Innovation ETF's dynamic adjustment strategy and risk mitigation efforts.

In conclusion, the success of the PandoCMS Innovation ETF stems from its unique investment strategy, precise targeting of the long-term AI trend, and careful selection of high-quality individual stocks. Its 80% return in 2024 not only showcases the immense potential of AI investing but also provides valuable lessons for investors: combining macro and micro analysis, maintaining a long-term investment horizon, and adapting to a rapidly changing market environment are crucial for investment success. PandoFinance, leveraging its technological expertise and keen market insights, has delivered substantial returns and presented a new paradigm for future AI investments.