Nanalyze

Review of The 3D Printing ETF (PRNT) from Ark Invest

Last week, a firm called Ark Investment Management (Ark Invest) unveiled “The 3D Printing ETF (BATS:PRNT)” which is based on their proprietary “Total 3D-Printing Index”. This index is designed to track the price movements of stocks with exposure to the 3D printing industry. Let’s take a closer look at this new 3D printing ETF by first looking at the 40 stocks included in their index as seen below:

PRNT Index Members

The first thing to note here is that there are 12 stocks with a weighting of just .2%. This means that the combined weighting of all 12 of these stocks is just 2.4%. To have stocks in the index with such low weightings doesn’t seem to make much sense. If one of these stocks showed a +500% return, it would still only have a weighting of 1%. These stocks have such an insignificant weighting that it makes no sense to analyze their involvement in 3D printing because they are not likely to have any meaningful impact on the ETF’s performance.

This leaves us with 28 stocks to examine. Since the top-20 stocks constitute nearly 80% of the entire portfolio, let’s just focus on these for now.

A year ago we published an article titled “Is Now the Time to Invest in 3D Printing Stocks? in which we created the Nanalyze 3D Printing Stocks motif which is a mini-ETF that contains the following popular 3D printing stocks:

Nanalyze_3D_Printing_StocksAll of these stocks are included in Ark’s ETF except for Materialise (NASDAQ:MTLS) which is a 3D printing stock that had an IPO back in 2014. We have no idea why MTLS is not included but we would expect it to be a core holding for 3D printing investors. Another core holding is 3D printing stock Arcam (STO:ARCM) which while being a Swedish stock, actually trades as an ADR for U.S. based investors. You can also buy Arcam on the Swedish exchange as a U.S. based investor which we highlighted in an article on how to buy foreign stocks. Ark includes Arcam as a top weighted holding. This leaves us with 15 remaining stocks to analyze.

Of the remaining 15 names, we’re going to cross off Microsoft (MSFT) and HP (HPQ) since both of these companies derive nearly all their revenues from products that are not related to 3D printing. As for Organovo (NYSEMKT:ONVO), their business model is around selling tissues to the medical field so we wouldn’t consider them to be a pure-play on 3D printing but rather a play on healthcare. Similarly, K2M Group Holdings (NASDAQ:KTWO) is a medical device company that uses 3D printing to build products used in spinal surgeries.

Three large software companies are also included, none of which derive a majority of their revenues from 3D printing:

  • Autodesk (NASDAQ:ADSK)
    Market Cap: $13.07 billion
  • Ansys (NASDAQ:ANSS)
    Market Cap: $7.95 billion
  • Dassault (EPA:DSY)
    Market Cap: $20.76 billion

This leaves us with 8 names left.

SLM Solutions Group AG (ETR:AM3D) – Builds 3D printers for metals and metal powders. SLM is definitely a pure-play 3D printing stock.

Groupe Gorge (EPA:GOE) – We wrote an article before on how we thought 3D printing would impact Groupe Gorge’s revenues. In an article published by 3D Printing Industry yesterday, the below statement was made about the progress they are making in 3D printing sales:

Today’s announcement illustrates that their 3D printing strategy is paying off. Groupe Gorgé’s revenue from 3D printing was €12.1m ($13.3m) for the 6 months ending 30 June, 2016. The company booked 3D printing related sales driving a 51.3% increase in the period. 3D printing revenue currently contributes less than 10% to the total €141.7m ($155.6m) reported total.

That’s very positive but still under 10% seems like you don’t get meaningful exposure to 3D printing by holding GOE. What number should we consider meaningful? The answer to that question is completely arbitrary, but it’s more important to see how 3D printing sales are affecting the bottom line. This topic may merit an article in the future.

Exa Corp (NASDAQ:EXA) – Builds CAD software used to analyze problems with fluid flows. Not one mention of 3D printing is made in their corporate profile or the description of their technology. Was this added under the assumption that somehow all CAD companies stand to benefit from 3D printing eventually?

Mentor Graphics Corp (NASDAQ:MENT) – A supplier of electronic design automation tools. Their 2016 annual report makes not one mention about 3D printing.

PTC Inc (NASDAQ:PTC) – Another software company involved in solutions for CAD/PLM/ALM/SLM/IoT with no mention of a focus on 3D printing at all.

Trimble Navigation (NASDAQ:TRMB) – A leading provider of location-based solutions like GPS. With an IP portfolio of 1,100 patents, they have the broadest solution portfolio in the industry. With no apparent tie in to 3D printing, it almost seems if this company was added by accident.

Mensch and Machine Software (ETR:MUM) – Another CAD company with a website only in German.

Kinpo Electronics (TPE:2312) – A $530 million Taiwanese manufacturer of communication products and consumer electronics whose Engrish website does show a line of 3D printers they began selling in 2014 called Da Vinci. We get the feeling that 3D printer sales don’t constitute a meaningful portion of this Company’s revenues, though they’d need to translate their financial reports into English in order for us to find out for sure.

3D printing is not going to be a strong growth driver for any company just by accident. “The 3D Printing ETF (BATS:PRNT)” from Ark contains too many names that just aren’t pure plays on 3D printing, nor is it clear to see how they will benefit from it presently or in the future. PRNT also has a rather strange method of weighting, leaving us to wonder if they would have been better off just using the STOXX® Global 3D Printing Pure Play index which has just 9 constituents and also includes Materialise.  The whole idea behind buying PRNT is to get pure-play exposure to 3D printing stocks. It seems that you could get more concentrated exposure by just buying the Nanalyze 3D Printing Stocks motif and then picking up both SLM Solutions and Arcam on the foreign exchanges where they trade.

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