What is LEGR? (Pros, Cons, and Strategies)

In the contemporary investment landscape, innovation plays a key role in driving profitability and growth. LEGR, an acronym for the First Trust Indxx Innovative Transaction & Process ETF, is designed to capitalize on this drive. If you're considering adding a layer of innovative exposure to your investment portfolio, understanding LEGR can provide insightful knowledge and strategies. This post will discuss what LEGR is, highlight its benefits and drawbacks, and outline various investing strategies.

What is LEGR?

LEGR, officially known as the First Trust Indxx Innovative Transaction & Process ETF, is a distinctive ETF in the U.S. stock market. This ETF aims to capture the growth opportunities in the blockchain sector.

LEGR tracks the Indxx Blockchain Index, which includes companies significantly involved in blockchain technology. Whether it is companies developing blockchain-based applications or enterprises adopting this innovation to optimize their processes, LEGR provides a broad exposure to blockchain technology.

Key Features of LEGR

• Companies significantly engaged in blockchain solutions development and deployment
• Firms leveraging blockchain technology to improve various business processes
• Diverse geographical exposure, including regions like North America, Europe, and Asia-Pacific

The index that LEGR follows comprises a mix of small, mid, and large-cap companies from different sectors such as technology, finance, healthcare, and industrials.

LEGR Composition

LEGR holds a diversified portfolio with companies actively involved in blockchain technology. Notable inclusions are firms like IBM (IBM), Amazon (AMZN), and Visa (V). LEGR's composition includes a mix of stocks that are poised for growth through the adoption and innovation of blockchain technology, making it an attractive ETF for tech enthusiasts and forward-thinking investors.

Pros of LEGR

Exposure to Innovative Technology

Blockchain represents one of the most promising technological advancements of the century, transforming a myriad of industries with its decentralized, secure, and efficient processes. By investing in LEGR, you gain exposure to these technological innovations that could become mainstream, enhancing returns over time.

Diversification Across Sectors and Geographies

LEGR offers diversification by investing across various sectors and geographies. This means that investors enjoy not only exposure to the blockchain theme but also the diversification benefits that traditionally reduce risk. Companies within LEGR are from different industries such as finance, tech, healthcare, and industrials, ensuring a broad and balanced investment.

Growth Potential

Given blockchain's nascent stage and enormous potential, companies involved in this technology are expected to deliver substantial growth. Investors in LEGR have the opportunity to ride the wave of this rapid innovation, potentially yielding significant returns in the long term.

Professional Management and Research

LEGR is managed and rebalanced according to the Indxx Blockchain Index, ensuring that it includes companies with credible involvement in blockchain technology. This extensive research and professional level oversight could alleviate the challenge individual investors face in identifying trustworthy blockchain companies.

Cons of LEGR

High Volatility

As with any ETF or stock focused on emerging technologies, LEGR experiences high volatility. The blockchain sector can be unpredictable, and fluctuations in the market can lead to significant price swings. This may not be suitable for investors with a low risk tolerance.

Higher Expense Ratio

LEGR comes with a higher expense ratio compared to more conventional ETFs. This factor may impact net returns over time, especially for investors holding the ETF for an extended period. Evaluating if the potential for higher returns justifies the high expense ratio is crucial.

Relatively Young Sector

Blockchain, despite its promise, is still in its early stages. Many companies are yet to prove their business models or achieve sustainable profitability. This inherent risk means that LEGR investors must be prepared for the possibility that some companies within the ETF may not succeed.

LEGR Investment Strategies

LEGR's focus on blockchain technology makes it unique. However, investing in LEGR requires a balanced and well-thought-out strategy, given its inherent volatility and the emerging nature of the sector.

Long-term Growth Strategy

For investors with a long-term horizon, LEGR can serve as a growth engine within a diversified portfolio. Blocking out short-term noise and allowing time for the blockchain technology and its applications to mature can yield significant growth. This is particularly suitable for investors who are confident in blockchain's long-term potential and are willing to endure short-term volatility.

Satellite Investment Approach

LEGR could be used as a satellite position in a core-satellite investment strategy. Here, the core of the portfolio consists of broad-market, stable investments, while LEGR and other thematic ETFs play a satellite role to capture higher growth areas like blockchain. This ensures that while a part of the portfolio seeks high growth, the overall risk remains balanced.

Regular Investment and Rebalancing

Investors can bolster the compounding effect by investing in LEGR regularly and periodically rebalancing their portfolio. This disciplined approach could optimize returns and manage risk over long periods. Rebalancing ensures that the portfolio does not become overly concentrated in blockchain while still benefiting from its growth.

Conclusion

LEGR offers a unique investment opportunity by providing exposure to blockchain technology, an emerging field with significant growth potential. While investors can enjoy the benefits of diversification and professional management, they must also be aware of the high volatility and nascent nature of the sector. By adopting a long-term perspective, integrating LEGR within a core-satellite strategy, and regularly rebalancing, investors can effectively harness the potential of blockchain technology within their investment portfolio.